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Falling stock markets send investors for safe haven of gold

The gold price is climbing as investors head for a safe haven amidst turmoil on the world stock markets.

Plunging oil prices, a fall in the value of the dollar and unsettling news about the growth prospects of the global economy all sent jitters through the markets this week.

In London, the FTSE-100 index closed down by 203.2 points on Wednesday (20 January) and falls were observed across Europe and the US. Global stock markets have fallen to their lowest levels since 2013, and many are now classed as ‘bear’ markets – showing a drop of 20 per cent or more from their recent peaks.

Andreas Clenow, hedge fund trader and principal at ACIES Asset Management, told the BBC: "I am quite pessimistic about the equity markets for the next two to three months. I do not see a 2008-style scenario, but I do see a bear market coming."

What does the market turmoil mean for the gold price?

Gold has long been considered a safe haven for investment during volatile times. Already, the gold price is rising on the back of disappointing oil prices and economic worries, consolidated by news that the International Monetary Fund (IMF) has downgraded its world growth forecast for 2016.

The gold price per troy ounce rose from £760.55 at 08:00 on Monday (18 January) to £767.62 at 18:00 on Tuesday and hit £781.26 by 18:30 on Wednesday. This morning at 09:00, it has slipped slightly to £776.92.

However, much of the weakness in the markets has been provoked by poor economic growth data coming from China, the world’s biggest buyer of gold. The precious metal’s prices may not rise as rapidly as expected if China does not continue its volume-purchasing.

The markets are also currently not experiencing inflationary pressures. Gold is considered a good hedge against inflation and tends to rise in price during inflationary periods. That means that now remains a good time to buy gold with further prospects of price growth still on the horizon should inflationary pressures increase.

Rob Haworth, senior investment strategist for US Bank Wealth management, said: "There's not a lot of appetite to bid up gold when you don't have an inflation issue."

Indian gold imports rise in 2015

In other global gold market news, figures from India, second only to China in the world gold-buying league, show the country’s gold imports increased by a quarter in 2015.

India bought in 900 tonnes of the precious metal last year, with December seeing particularly high import figures as buyers took advantage of a relatively weak gold price.

Analyst Sudheesh Nambiath, from GFMS Thomson Reuters, said: “Gold demand increased in December when prices were at the lowest level in 2015, and as retailers increased their inventory to optimum levels. Our estimate for December import is 107 tonnes.”

The Indian government has introduced a number of measures to free up stockpiles of the precious metal held in the country and reduce its reliance on imports to meet demand. These include monetising gold and encouraging gold recycling, where jewellery is turned into bullion bars to be sold on the domestic market.


Article Last Updated: Thursday, January 21, 2016