Gold re-emerges as safe haven amid market uncertainty

CALGARY - The year has been a roller-coaster for stock markets and that's giving the traditional safe haven of gold a big boost.

See Full Article

The price of gold has climbed from around US$1,060 per troy ounce at the beginning of the year to more than US$1,240 last week. Over that same time, the S&P/TSX composite index is down 4.8 per cent.

"Investors are suddenly waking up to the risks in the market, pretty much like what happened in 2008," says Robert Cohen, portfolio manager at Scotiabank's Dynamic Funds.

"This time it's more of a slower motion train wreck out there, so people are slowly digesting that information and systematically moving to safe havens like gold."

So is it time to buy in?

Some central banks think so. Last year saw the second-highest amount of gold bought by central banks in at least 20 years as countries like Russia and China bolstered their reserves, according to the World Gold Council.

Mark Allen, vice-president of Canadian equities at RBC Wealth Management, says there's been strong demand for gold from banks wanting to diversify their currency holdings as the odds of interest rate hikes in the U.S. fade and other countries like Japan move to negative interest rates.

"The reason they're doing it is due to declines in currencies broadly around the world, so they want an alternative means of securing their wealth," says Allen.

For the average investor, fluctuations in the Nigerian nira or the Azerbaijani manat might seem inconsequential, but Cohen says holding gold would have buffered investors from losses in our own Canadian dollar.

While the loonie has dropped about 31 per cent against the U.S. dollar from its peak in 2011, gold priced in Canadian dollars has only dropped about 11 per cent in the same period, and on Monday was trading at about C$1,670 per troy ounce.

"The last two years we've seen a bit of a stealth rally in gold, insofar as in Canadian prices it's moved up very nicely because of the weakening Canadian dollar," says Cohen.

He says investors shouldn't think about the price of gold in U.S. dollars while looking at everything else they buy in Canadian dollars.

"Certainly if you look at your house price in USD, it may have gone down in price over the last year."

But while gold may have soared recently, it still pays no interest or dividends, and so it should be thought of more as insurance than an investment, says Scott Vali, portfolio manager of Global Resources at CIBC Asset Management.

"It is a bit of an insurance policy against an upset in the broader financial market," says Vali. "I think that's the way it should be looked at. Insurance policies generally don't earn you a return, they're there in case something goes wrong."

Vali says that with gold somewhat inversely tied to the broader economy, how much you invest in gold depends on your outlook.

"At the end of the day, it depends on your view of what the global economy is going to look like."

Cohen says the amount varies with risk tolerance, but he recommends at least five per cent and upwards of 20 per cent.

Allen says he finds buying gold difficult because it's hard to value with virtually no industrial purpose, and it has a tendency to have big price swings.



Advertisements

Latest Economic News

  • NEB to reconsider B.C. natural gas pipeline jurisdiction: judge rules

    Economic CTV News
    VANCOUVER -- A Federal Court of Appeal judge has ruled the National Energy Board must reconsider whether a proposed TransCanada Corp. (TSX:TRP) natural gas pipeline in B.C. falls under provincial or federal jurisdiction. "The board did not ask itself whether an arguable case for federal jurisdiction had been made out," wrote judge Donald J. Source
  • U.S. says ban on laptops in airplane cabins has been lifted

    Economic CTV News
    DALLAS -- The ban on laptops in the cabins of planes flying from the Middle East to the U.S. is over, as federal officials say that large airports in the region have taken other steps to increase security. Source
  • McDonald's adds Big Mac onesie, sweats to items it delivers

    Economic CTV News
    OAK BROOK, Ill. -- With McDonald's now offering a delivery service, the fast food giant is looking to make customers comfortable eating at home with a new clothing line that includes an adult-size Big Mac onesie. Source
  • Observers temper expectations for Sears liquidation deals

    Economic CTV News
    TORONTO -- Dozens of Sears stores slated for closure begin liquidation sales Friday, but bargain hunters would be wise to temper their expectations, say industry experts. Eager to avoid bankruptcy, the one-time retail giant is counting on hordes of shoppers to scoop up discounted merchandise, fixtures and equipment as soon as possible. Source
  • Price shock: Fraser report shows Ontario hydro prices surging at twice national average

    Economic CTV News
    Ontario energy prices have skyrocketed significantly higher and faster than the rest of the country over the last nine years, with Torontonians paying twice the national average, according to a report from the right-leaning Fraser Institute. Source
  • Exxon Mobil fined $2M US for Tillerson-era breach of Russia sanctions

    Economic CBC News
    The Treasury Department hit Exxon Mobil Corp. with a $2 million fine Thursday for violating Russia sanctions while Secretary of State Rex Tillerson was the oil company's CEO. Treasury said in a statement that Exxon under Tillerson's leadership had shown "reckless disregard" for sanctions that the Obama administration imposed on Russian entities in 2014 over Russia's annexation of Crimea. Source
  • Rogers Q2 net income rises 35%, beats analyst estimate

    Economic CBC News
    Rogers Communications reported a 35 per cent increase in second-quarter net income on Thursday, beating analyst estimates with an especially strong performance from its key wireless division. It's the first financial report issued by the Toronto-based telecommunications and media company on Joe Natale's watch since he became its CEO in April. Source
  • Supreme Court won't hear appeal from former Nortel employee over benefits

    Economic CTV News
    OTTAWA -- The Supreme Court won't hear an appeal from a former Nortel employee who claimed her charter rights were violated over the issue of disability payments. The employee had argued that the 2015 agreement reached on how disability benefits would be paid out in the wake of Nortel's bankruptcy was unfair and unreasonable. Source
  • Canadian travel to U.S. drops, while overseas visits to Canada surge to highest May ever

    Economic CBC News
    Canadians are making fewer trips to the United States, and foreign appetite for travel in Canada has hit its highest May on record. Statistics Canada reported Thursday that Canadians made 3.2 million trips to the United States in May, down almost eight per cent from April's level and nearly six per cent lower than the same month a year ago. Source
  • Florida house where O.J. Simpson lived listed for $1.3 million

    Economic CTV News
    MIAMI -- What happened to the Florida home where O.J. Simpson lived with his children after his acquittal in the death of his ex-wife and her friend? The 4,148 square-foot (385 sq. meter) home is currently on the market for nearly $1.3 million. Source