Research library

The gold supply chain is truly global. Gold is mined on every continent except Antarctica, refined into bars and coins in numerous countries, and distributed far and wide. This geographical dispersion not only brings stability to the gold market, it is also necessary to satisfy demand.

Gold is a clear complement to equities, bonds and broad-based UK investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing robust performance in both rising and falling markets.

Gold benefits from diverse sources of demand: as an investment, a reserve asset, a luxury good and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.

Central bank reserves are typically constructed according to three guiding principles: safety, liquidity and return. The Covid-19 pandemic has reinforced the significance of these principles and, by extension, the importance of smart and sustainable reserve management. 

The COVID pandemic and the ensuing economic lockdowns around the world have slashed global growth forecasts in 2020, but expectations of the speed of the economic recovery are quite varied. We analyse the potential performance of gold across four hypothetical scenarios provided by Oxford Economics.

The global COVID-19 pandemic fuelled safe-haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market.

The benefits of certain portfolio hedges came into clear focus during the 2008-2009 financial crisis and did so again during the subsequent European sovereign debt crisis, the 2018 December stock market pullback and the most recent COVID-19 pandemic.

We believe that the recent volatility in the gold price was driven by massive liquidations across all assets and likely magnified by leveraged positions and rule-based trading.

Gold demand fell 1% in 2019 as a huge rise in investment flows into ETFs and similar products was matched by the price-driven slump in consumer demand.

Risk appetite amid high uncertainty
As we look ahead, we expect that the interplay between market risk and economic growth will drive gold demand in 2020