Commentary: Gold may have lost some of its shine but don’t write it off just yet

SINGAPORE: Gold has been one of the best performing assets this year. It reached an all-time high of US$2,031 an ounce on Aug 7. Since attaining that pinnacle, it has retreated 8 per cent to a three-month low of US$1,859.

However, there are signs that there could be renewed interest in the metal. Its price has recovered above that and, importantly, the movement of the gold price this year has defied conventional wisdom.

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GOLD VS EQUITIES

Since the start of the year, an ounce of the yellow metal has risen from $1,514 an ounce to $1,890 today. The 24 per cent rise has outperformed Singapore’s Straits Times Index’s 21 per cent decline, and the US Dow Jones Industrial index’s somewhat flattish performance for the year.

It has also outstripped the pedestrian 4 per cent rise in the MSCI World Index, which is a broad measure of the global stock market’s performance. But it has not quite matched the Nasdaq’s 32 per cent gain this year.

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It is unclear, based on this year’s data, whether gold’s outperformance in the last 10 months has been at the expense of equities. Historically, when investors shy away from risk assets such as shares, they tend to seek safe havens such as gold. 

But whilst there is a hint of that happening in some markets, the data is not entirely convincing. For instance, it doesn’t entirely explain why gold and the Nasdaq have moved in near lockstep this year.

If we backtrack over the last two years, which was when gold first showed signs of gaining interest, the move from equities to the precious metal is almost as ambiguous. 

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