Petri Redelinghuys of Herenya Capital Advisors on gold and gold trade.
Ever since the start of the conflict in the Middle East, gold has been taking a dive, dropping from the highs of $5400, to just a hair above $4000. With the recent earnings performance of AngloGold (ANG) in mind, gold trade can appear to be in a complete freefall with no end in sight, making some wonder if it’s worth investing in any more. Today, we’ll attempt to shed some light on the topic.
Historic Gold Trade
Gold has historically had close ties to risk and inflation, with it functioning for over a century as a safe space in uncertain or high-inflation times. This relation has seemingly broken down recently, as treasury bonds, particularly U.S. bonds, have usurped gold’s position as an inflation hedge. We’ve repeatedly seen the market scramble to sell gold and equities to buy treasury bonds when the market expects a rise in inflation or interest rates, and vice versa, much to the dismay of many seasoned traders.
Gold’s Position Now
As gold’s relation to inflation expectations changes, so should a good trader’s handling of gold and gold-related stocks, such as gold mining companies. As the war in the Middle East continues to disrupt the global energy supply chain and create uncertainty, gold should only take up a portion of any one portfolio and be treated like an ‘end-of-war’ trade. With gold thriving better in more certain times, we believe it’s best to wait until you see one of two situations before investing in gold assets.
The first and more obvious is a proper and final end to the war, with ships passing undeterred through the Strait of Hormuz. The second would be a supply chain adaptation to the situation, much like what we saw with the war in Ukraine. New pipelines, trade routes and infrastructure could lead to a bypassing of the Strait, or increased oil production in other regions that could help compensate for the loss of Middle East oil, and allow the market to start recovering once again.
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*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.
