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

  • Asian stocks weaker as failure of U.S. health care reform lingers

    Economic CTV News
    SEOUL, Korea, Republic Of - Asian stocks got off to a weak start on Monday as caution among investors prevailed with lingering doubts about the future policy agenda of the new U.S. administration following the health care reform failure. Source
  • Home buyers and tenants leaving B.C.'s Lower Mainland for smaller towns

    Economic CTV News
    POWELL RIVER, B.C. - David Repa recalls the shock he felt sitting down at a bank after selling his Vancouver business in 2013 and realizing for the first time how much of "a joke" his prospects were of owning a home in the city. Source
  • 'We're all hurting': Calgary arts cut to the bone as corporate funds dry up

    Economic CTV News
    Calgary's performing arts scene has become a casualty of corporate cost-cutting as the city's economic doldrums drag into a third year, prompting organizations to band together to seek more municipal support. The energy sector has long been a stalwart patron of the arts in the white-collar heart of the oilpatch. Source
  • Seattle plant failure triggers major sewage spill

    Economic CTV News
    SEATTLE -- Millions of gallons of raw sewage and untreated runoff have poured into the United States' second-largest estuary since a massive sewage treatment plant experienced equipment failures that forced it to stop fully treating Seattle's waste. Source
  • Leaving airline seatbelt sign on for too long could pose risk: expert

    Economic CTV News
    An airline safety expert says plane crews may be unwittingly compromising flight safety by leaving seatbelt signs on too long. Greg Marshall suggests passengers may not see the need to remain buckled up if the signs remain illuminated during a smooth ride or if no one has explained to fliers what's going on. Source
  • Shoppers computer crash and budget zingers: CBC's Marketplace consumer cheat sheet

    Economic CBC News
    If you've been too busy to follow the consumer news this week, here's our cheat sheet. And you can get the Marketplace newsletter in your inbox every week. What you need to know about the budget Source
  • Will NYC invite the 'Fearless Girl' to stay on Wall Street?

    Economic CTV News
    NEW YORK -- Should the "Fearless Girl" stand up to Wall Street's charging bull forever?Scroll down or click here to vote in our poll of the day NEW YORK -- Should the "Fearless Girl" stand up to Wall Street's charging bull forever? Source
  • Russia says oil production cuts may continue to boost prices

    Economic CTV News
    KUWAIT CITY -- Russia's energy minister says there's "94 per cent" compliance on a six-month oil production cut among OPEC members and non-cartel nations, as well as discussions about continuing the cuts to boost crude prices. Source
  • OPEC, non-cartel nations may extend oil cut another 6 months

    Economic CTV News
    KUWAIT CITY -- OPEC members and non-cartel nations are leaving open the possibility of a six-month extension on a deal to reduce oil production, according to a statement Sunday by a committee of ministers from OPEC and other oil-producing nations. Source
  • Iran imposes sanctions on 15 U.S. companies

    Economic CTV News
    TEHRAN, Iran - Iran has imposed sanctions on 15 American companies over their alleged support for Israel, terrorism and repression in the region. A Foreign Ministry statement carried by the state-run IRNA news agency Sunday said the companies are barred from any agreements with Iranian firms and that former and current directors will not be eligible for visas. Source