If you thought the equity investment and the kinds of higher risk assets was the “in thing”, think again! The increase in the prices of gold in the first quarter of this year has been lot higher than most equities markets, excluding India. Yields have also been exceeding inflation based on National Consumer Price Index in India, which ranged between 8.79 percent and 7.31 percent over this period.
“So far in this year, gold has risen 9.2 percent. This surprised many participants in the market like the majority of Commodity Advisory had predicted that lower prices. Some investors may used the pricing adjustment from last year to buy gold, but investment demand has stayed lukewarm, “said the World gold Council (WGC) in its recent press investment commentary for the first half of this year.
Gold has continued to recover in escalating geopolitical risks in the Middle East and Russia, and rising the financial risks in Europe and return to the volatility of the equity markets, according to a weekly review of ETF Securities Ltd (ETFs).
To the real interest rates slope and potential cracks that make at the historic market rally of 5 + years equities, gold trends positive. Some remaining cautious diversification towards safer assets H2 the tendency has been early, ETFS said .
“So far, that’s good prices are rising, volatility has been reduced and gold has challenged the bearish bias so many gold analysts proclaimed in early 2014. Early indicators suggest that demand from consumers remains tough even after a record year in 2013 .. The net purchases by Central banks have collected by adding about 180 tons to official reserves January to 1 May. while jewelery demand had its best first quarter since 2005, “said the note.
In comparison, most of the global markets have surged less, other landmarks of India – BSE Sensex and Nifty (National Stock Exchange) – which increased by 20 percent each during this period ahead of Narendra Modi led-NDA government victory in Election 2014.
Sorted by WGC, only a few goods saw a perform better: selected commodities (such as grains, nickel and palladium); Indian stocks (who benefit from the Bharatiya Janata Party scan the elections); and REITs in the United States.
Analysts also ascribe the surge in gold to geopolitics situation in West Asiathat created an uproar in higher risk assets such as equities. “The geopolitical situation in Iraq and Syria has established panic situations as petroleum markets and equities market worldwide. Secondly, besides the U.S. and India, the equities markets have not done spectacularly well. Thus, people chose to invest in gold, given the low price and low volatility. Gold turned out to be a steal investing and a cover in times of uncertainty. More than, prices had seen a tremendous fix before and were in a bearish mode. It also attracted investors to the yellow metal, “said commodities analyst.
The start of 2014, the for precious metals closed the week with year earnings to date over the 6.5% increase y-o-y date on the S & P 500 index. FOMC minutes of the meeting published the last week pointed out that some Fed policy makers believe that “market players were insufficient factoring on the uncertainty about the trajectory of the economy and monetary policy.” Gold rose strongly with the VIX volatility index, which ended the week at 12.1 versus to 10.3 the previous week, which was the lowest rate since February 2007. gold must be a major payee if the volatility again the equity markets.
WGC thinks investors might benefit through the addition of gold as a hedge to their portfolios, irrespective of whether they see this as a tactic to current market conditions or any part of an overall strategy to manage long-term risks answer.
Note WGC says, “Gold helps reduce the volatility of long-term portfolio, acting as a diversificador and it can help increase risk adjusted yield. Some investors may see the current climate of lower volatility as a chance to add the gold, considering that, in addition, the gold must be seen as a strategic element portfolio. ”