The inflation of unresolved crises has boosted the price of gold since the end of May. For example, Boris Johnson, as presumably the new party leader of the British Conservatives, wants to renegotiate the Brexit deal with Brussels. Since new European dispute is inevitable. And Italy is threatening a new debt crisis. The Italian government debt threatens to rise to 135 percent of economic output in 2020, as Robert Halver, Head of Capital Market Analysis at Baader Bank, writes in the latest “KapitalmarktMonitor”.
Above all, the mood of investors is unsettling the never-ending trade conflict. Worsening economic and inflation expectations led to falling interest rates and thus to falling opportunity costs of the interest-free gold asset class. Against this backdrop, the interest of speculative investors as a short-term driver has increased again, it goes on.
“The physical demand remains strong. The focus here is particularly on the investment behavior of the central banks, which continued to significantly expand their gold holdings with net purchases in the first quarter of 2019, according to the World Gold Council. Most recently, the People’s Bank of China stands out as a gold buyer who wants to sustainably reduce the large dependency on US bonds in their currency reserves. Since no convergence in the US-Chinese trade conflict is foreseeable, gold purchases and therefore price inflation pressures should initially persist, “said Halver.
Relaxation marks in the tariff dispute had indeed oppressive gold price. But even in view of the increasing world debts, despite the yielding risk-free credit, the safe haven of gold is far too cheap. On the explosion of US government debt gold price has responded below average price. The share of gold in the total assets of the world is fundamentally unjustified at 0.6 percent, it goes on.
“Obviously, there are strong monetary and fiscal forces that fear gold as a substitute currency. No wonder, since it can not be increased as much as money, it could never cover the excessive world debt, “says Halver.