Gold climbs over $1200

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Gold’s progression continues, as the metal climbs back over the US$1200 mark for the first time since June last year.

Much of this is due to investors flocking to gold and gold back funds as the market continues to face uncertainty and the oil price stagnates, with the metal representing a safe haven for investors.

“Investor sentiment remains broadly risk-off, which is positive for gold,” Jonathan Butler, a precious metals strategist at Mitsubishi Corporation in London, told Bloomberg.

“Looks like there is nowhere to put money at the moment that is safe or gives a decent yield,” David Govett, head of precious metals at Marex Spectron Group in London, added.

“The only market that is performing well is gold and that is attracting the spare money sloshing around the system.”

Spot prices jumped more than two per cent, lifting the metal to US$1200.97 in New York and to the highest price point for gold since June 2015.

It also cements the metal’s position as the best performing commodity of the year to date.

However some analysts remain bearish on gold’s future, expecting it to fall in price to trade at the US$1000 per ounce mark by the end of the year as the US Federal Reserve increases interest rates a number of times.

Yet some are pointing to continued strength for the metal, looking at three aspects that have traditionally forecast market outcomes and generate stronger returns:  Two-term president, the oil vs. gold divide, and simply staying the course.

Investors that bought equities before the Financial Crisis had a 20.2 per cent return up until January 25, 2016; they “stayed the course” and were rewarded with an eventual return.

However, those that held gold during that same time period  had a 48.6 per cent return, more than double that of the general market, which still holds true despite gold shedding two fifths of its value since peaking in 2011.

The last four presidents to serve two terms have had stock markets rise significantly during their tenures. However, the stock markets also suffered catastrophic losses in each of their final years as president, with Obama’s final year in power following the set precedent.

During George W. Bush’s tenure, the S&P 500 nearly doubled from a bottom of 801 during the early 2000’s Dotcom bust to a peak of 1562.

Then the Financial Crisis hit at the end of Bush’s second term and the market went down to 677 points.

Obama is now in his last year, and the market was up 178 per cent from its bottom in 2009 – as of January – but the question remains as to where it will find its trough.

Oil and gold have also had a relatively strong historical relationship, as they are hard assets that move similarly in inflationary environments.

However, gold and oil also have some major differences in how supply and demand tends to affect the price.

The gold to oil ratio is expressed in the amount of oil barrels that can be bought with one ounce of gold; a lower ratio means that the economy is doing well, while history has demonstrated that when ratio is above 20 there has been some type of market crisis.

Today this ratio sits at an historical high of 37.

This portends to a healthy future and safehaven for gold.

However, according to Bank of America Merrill Lynch analysts, the metal is in the processing of bottoming out, supporting the previous pessimistic analyst assumptions for a US$1000 trading point by the end of the year