Is it a good time to buy gold?

Is it a good time to buy gold? For any investment, it is hard to say when it is a “good” time, since it is all relative.

But since gold is one of 2016’s best performing asset classes, it is worth examining why it has done so well. And the reasons should provide pointers as to whether, on balance, it might be good to buy bullion now.

Since peaking at $1895/ounce in 2011, gold has not performed well. As economies have slowly recovered since the Great Financial Crisis of 2008, volatility has dropped, and the expectation for inflation has continued to fall around the globe.

Even with interest rates remaining at unprecedented low levels, in many of the world’s major economies, signs of asset inflation (with the exception of property) have been fairly subdued. Hence there has been little incentive to buy or hold gold over the last few years.

This year, however, both in the lead up to and in the aftermath of the momentous event of the Brexit vote, there has been a huge increase in uncertainty.

Gold does especially well in times of great uncertainty.

Along with the US dollar, the Japanese yen, and the Swiss franc, it is well known as a hedge or ‘safe-haven’ in troubled times. The worldwide prevalence in recent months not just of low yielding assets but negative yielding assets also puts gold in a relatively better light.

According to the Financial Times, almost half of western debt has negative nominal yields.

Times are certainly troubled. The rate cutting by central banks in much of the developed world before and after Brexit does not appear to be having the desired effect of stimulating growth. While the US economy is picking up, by no means is this across-the-board.

Some countries in the Eurozone are growing, but many others are not. Japan limps along, and China expands, but at a much slower pace than in the past. The UK has just suffered a 20% collapse in its currency – hardly boding well for the future.

According to recent surveys, professional investors everywhere have been increasing their holdings of cash, with cash holdings at their highest point since the 9/11 terrorist attack – suggesting nervousness is widespread.

September and October are statistically the worst performing months for stock markets. But there is no guarantee that 2016 will follow the same pattern.

Nevertheless, given the total lack of clarity around Brexit and fears of its knock-on effect in Europe, plus an upcoming US presidential election which is by no means a shoe-in for the only sensible candidate, Hilary Clinton, one cannot help thinking that even a small exposure to gold would not go amiss.

One of the simplest methods of gaining exposure to gold in Singapore is through a listed gold exchange traded fund (ETF). Unlike owning bullion, bars or coins outright, there is no holding cost, and no security issues for an ETF. The only cost is commission.

George Soros has been buying gold producers pre- and post-Brexit, and he has an excellent investing track record!

(By Lynette Tan)

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