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Investors Turn to Gold Amidst Stock Market Unrest

1st September 2015

Recent events in China and economic uncertainty in Europe have prompted major reassessments in the financial markets in 2015. Investors, particularly in Russia, Germany and the United States are now turning to the once turbulent gold commodity market to protect themselves from further knocks. Like the world's best performing property markets, gold is considered to be a 'safe haven' investment in times of economic instability. It has now become a crutch for the ailing Russian economy and a new investment option for investors and everyday savers.

gold bar on gold coins

Recent activity

When jitters in the Chinese Stock market started to develop in mid-August, the World Gold Council revealed that gold stockpiling was rife after three consecutive months of high demand from March until June.

In Europe, gold sales have been led by Germany where gold was stockpiled to 24.1 tonnes in Q2. Austria and Switzerland followed suit during this time frame while Russia purchased 36.8 tonnes. Germany is now the second largest holder of gold after the US with an accumulated 3,381 tonnes, while the UK lags behind with just 310.3 tonnes. Retail gold investment has risen by 19% since 2014 and European gold sales have flourished as a Greek exit from the Eurozone prompted a flood of 'safe haven' spending in the gold and property markets in particular this summer.

Regular savers with disposable income to spare have also been drawn to gold market as saving gains amongst mainstream banks continue to be poor after the bailout seven years ago. According to Hargreaves Lansdown, savers can expect a 2.8% Isa gain compares to 9.6% in the gold market.

Earlier this year, the Indian government launched a cohesive plan with the leaders of its temples to transform privately held gold donations and investments - to the tune of $1tn according to the World Gold Council - into a monetary asset that would circulate across India's population. As the leading consumer of gold, India will now use its gold assets to protect its foreign exchange reserve from global economic impacts.

The recent popularity in gold is a stark contrast to headlines in 2014. Total demand in the 2014 June quarter fell by 12% to 915 tonnes. However, some have turned gold into an asset as part of a wider financial strategy. Profitable asset funds like Ruffer Total Return and Troy Trojan have relied on its 3% and 10% gold stakes respectively after the 2008 crash. Other established commodity assets, like cash and inflation-linked bonds have also protected these investment management funds from a stream of shocks in the stock market.

State of play

On August 27, China's Shanghai Composite Index finally broke its losing streak with a surge of 5% and the FTSE 100 index rose by 150 points by the morning. The sharp rise in buy orders in China, as a possible consequence of the devaluation of the renminbi, may scupper global interest in gold as markets return to the stock markets rather than commodities. The gold industry's seven-week high has coincided with falling American shares and the upcoming US rate rise, however, the US Federal Reserve System may delay the rate that could offer short-term gains in the gold sector or lead to deflation which will reverse commodity gains. Time will tell.

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