Friday, September 30, 2022

Gold nears three-month high as investors rush to safety

ETFs have experienced inflows for four consecutive weeks and a notable spike in trading volumes over the last few days.

VanEck’s US-listed gold miner ETF recorded $US1.36 billion ($1.9 billion) of trading volume on Friday and $US962 million on Monday, exceeding its one-year average of $US700 million.

Geopolitical risks

ETF Securities acknowledged a similar trend with its gold ETF reporting $42 million of trading volume on Friday and $37 million on Monday compared with its long-term average of about $4 million to $5 million.

“The elevated levels of trading volume indicate to us that investors are starting to tactically position for the current geopolitical risks and inflationary pressures,” said Kanish Chugh, head of distribution at ETF Securities.

“Our gold ETF is mostly used by institutional and wholesale investors so it illustrates how their asset allocation is responding to these challenges.”

The precious metal’s burst has sparked a rally in gold miners, which made up four of the top five performing stocks on the local market on Monday, and added to those gains on Tuesday morning.

VanEck believes gold miners that are leveraged to gold prices have the potential to continue to perform strongly.

“Debt reduction and free cash flow generation have fundamentally transformed how these companies look on both an absolute and relative valuation perspective,” said Russel Chesler, VanEck’s head of investments and capital markets.

‘Second-tier’ safe-haven asset

However, strategists have warned that gold’s advance could be short-lived in the face of US monetary tightening.

“This safe-haven demand has historically been temporary – there was an initial push due to the fear of conflict between Russia and Ukraine, but if these risks intensify and there is an invasion, what we will see is the US dollar rally significantly and gold will fall as a result,” said Vivek Dhar, Commonwealth Bank’s mining and energy commodities analyst.

“So in this environment, gold is being supported given the conflict hasn’t matured yet, but we see gold as a second-tier safe haven asset because once these fears are realised, the market will aggressively move to the US dollar.”

Gold’s advance came despite the US dollar index rising 0.6 per cent to 96.08.

Commonwealth Bank said the greenback could strengthen further this week if the risk of a Russian invasion sparked an equity market sell-off.

Nation World News Desk
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