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I am not sure right now whether gold is actually considered by the broader market as a safe haven. Traditionally, it has played a large and significant role as a less risky commodity. When in times of economic and political adversity, money has traditionally flocked to gold, it is effective as a store of value. What people expect from gold is to manage and protect their wealth. However, what we are seeing now, though, gold is actually trading in line risky assets, which does not really make sense for safe haven.
Typically, safe haven should fall when risky assets rise and should rise, when risky assets fall. Gold is not doing that right now. For the moment gold is trading as a risk asset rather than safe haven.
What drivers determine gold's performance on the market?
There a number of factors with the US Dollar being one of the main. Typically, with the strengthening of the Dollar, gold will tend to weaken. Yields and inflation also influence gold. If we look at the longer term, gold has not been very effective hedge against inflation. One of the other factors which affect the price of gold is the cost of holding it. When there is a lot of money around, and interest rates are low, it is relatively cheap to hold gold, thus people tend to buy it. In particular, during the times of negative real interest rates, when they are little like an inflation, people tend to turn to gold.
What is your outlook for gold prices for the second half of this year?
In general we see the prices to continue their rise. Gold by the end of the year should be trading at around $ 1820 an ounce, thus we are expecting a 10% rise in gold prices in the near future.
Will gold hold its position of safe haven in the future? Or another precious metal will become more attractive investment decision?
If you look for safety during a financial Armageddon, with money losing its value, then gold is the place to be. Therefore, people see gold prices to be $ 5000, $ 1000, $ 20 000 an ounce, but that is not our take. We see the prices growing up around $1860. There is no argument that there is a significant default in the Eurozone, or people lose faith in the US Dollar. We think that price of gold should continue to rally. These are some reasons for that: we see a very strong demand from emerging countries' central banks. People do not want to keep all their money in one basket, they do not want to hold all their assets in the US Dollars, in particular. Typical emerging Asian central banks have about 5% of its reserves in gold at the moment. China is exception to that having a lot less. However, they would like to have 15 %. Basing on our calculations, that is more than 20 000 tons of gold, which is a 10-year money supply, they are not going to be able to achieve those goals of holding that quantity of gold as a reserve, but it is their ambition. We think that China will come to the market, thus increasing demand for gold, which will drive the prices up.