A golden safe haven

Gold continues to glitter for three very good reasons, says Nicholas Snowdon, Deutsche Bank’s Metals Analyst at Deutsche Bank Research – a low interest rate environment, a record period for bonds yielding below flat, and low inflation.

“Geopolitical events support safe haven buying and this creates a strong environment for gold investor demand,” he explains.

Obviously when there is a commodity that everyone likes there will be period when positioning is stretched and there will be corrections – bouts of instability do fade and prices could come off. But, says Nick, these should be viewed as buying opportunities. After all, supply is hardly going to increase given that gold mine capex has been constrained for the past five eyars.

To find out more, tune into Trade Finance TV now.

Transcript of interview:

Clarissa Dann Welcome to Trade Finance TV, your insight into the global trade climate for importers, exporters and their financiers. I’m Clarissa Dann. In the market where bond yields are down, liquidity constrained, where on earth do investors turn? In this interview, we’re speaking with Nick Snowden about the international gold market, liquidity sell-off, risk and supply.

Nick, welcome back to Trade Finance TV. Good to have you here.

Nicholas Snowdon Thanks for having me.

Clarissa Dann We’re going to have a look at gold. When it glitters it usually is for a very good reason, isn’t it?

Nicholas Snowdon Yeah, well, so far in 2020 and in fact, 2019, it’s been a relatively stellar year for gold performance. And I think there are kind of three factors that have been driving that. If you look at the first and foremost, we remain in a very low rate environment. We’re in a record environment for bonds yielding below flat. So ultimately, you know, it’s a setting where gold has a lot of attraction.

Second of all, there’s no inflation, really, so low inflation is another positive for gold. And I think finally, you know, we keep on having these geopolitical events that really support safe haven buying. So I think it’s those three factors and they’re really combining to create a strong environment for gold investor demand.

Clarissa Dann What are the risks associated with this? There must be some?

Nicholas Snowdon The first one is just simply when you have a commodity that everyone likes, like gold right now, you will get periods when positioning gets very stretched and there will be corrections. So I think that’s just inevitable. But that doesn’t mean the commodity is going to fall apart. And if anything, a sell-off should be viewed as a buying opportunity.

And I think second of all, linked to that, some of the bouts of geopolitical instability that have supported gold do fade. And in those moments, prices will come off, but I think overall it’s an environment really underpinned by sustained factors. So it’s definitely a buy-on-the-dip kind of bullish story for us

Clarissa Dann In terms of its overall sourcing, what do you think is going on in the mining sector of those mines in South Africa and Australia, where it all comes from?

Nicholas Snowdon Well, I think it’s an environment like many other commodities. You know, really, for the last five years, we’ve been in a very capex-constrained environment for mining companies, like for copper, like for iron ore, and similar for gold mining. Companies aren’t really investing in new supply, they’re keeping production just about where it is. So I think you can say for gold, we’re not in the wrung, we are certainly going to see supply shooting higher.

Clarissa Dann Nick, thanks so much for coming in to Trade Finance TV.

Nicholas Snowdon Thanks very much for having me.

Clarissa Dann I’d like to thank next Nick Snowden and of course, all of you for watching. To catch our monthly reports on other markets or to subscribe to our newsletter, do go to TRADEFINANCETV.NET.

Published on February 28, 2020

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