Gold has bounced from four-year lows as stockmarkets have swooned, boosting demand for an asset that historically does well when other assets fall. Fears that the eurozone crisis is flaring up again have also been bullish for gold. Can it build on the latest jump?
The fundamentals look tricky. The US dollar is strengthening as investors price in rising interest rates. Higher rates, plus an ongoing economic recovery, suggests things are getting back to normal – not good news for an asset that thrives on bad news.
But over the longer run, there seems scope for further gains. Demand in emerging markets is solid, with developing world central banks continuing to buy.
Russia added to its stash for a seventh straight month in October and now has the fifth-biggest gold holding of any central bank. Emerging market consumers should show more interest in gold as jewellery and an inflation hedge as incomes grow.
All the money printing of recent years could yet lead to a surge in inflation, and another financial crisis would badly dent confidence in paper money. “Bottom line, gold is money,” as Peter Boockvar of The Lindsey Group summed it up. Particularly “in a world where fiat currencies are being created to an extent the world [has] never seen”.