Tuesday 27 September 2016

Negative interest rates spark record gold rush as demand for safe deposit boxes jumps

Szu Ping Chan

Published 12/05/2016 | 10:40

Gold is seen as a safe haven for investors
Gold is seen as a safe haven for investors

Investors snapped up gold at a record pace in the first three months of 2016 as global growth fears intensified and central banks slashed interest rates deeper into negative territory.

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Concerns that Britain could leave the EU also triggered a spike in demand across Europe where " investors were plagued by lingering Brexit fears," according to the World Gold Council.

Gold demand climbed by 21pc to 1,290 tonnes in the first three months of 2016 compared with a year earlier, its gold demand trends report said.

This represents the biggest first quarter  increase since records began in 2000.

The council said the rise was "fuelled by investor concerns regarding economic fragility and an uncertain financial landscape."

The first three months of the year saw massive inflows into exchange traded funds (ETFs), which give investors an easy way to invest in gold without having to purchase bullion.

Alistair Hewitt, head of market intelligence at the World Gold Council, said investors ploughed money into gold as central banks ventured further into negative territory on interest rates, global uncertainty rose and traders upped their bets that the US Federal Reserve would not raise interest rates this year.

"Investors are questioning the ability of central banks to have a significant impact on the global economy," said Mr Hewitt.

The Bank of Japan stunned markets in January by cutting its interest rates into negative territory.

Sweden pushed its rates deeper into negative territory in February while the European Central Bank ramped up its easing measures in March.

"At the start [of the crisis] central banks around the world slashed their interest rates to zero, then they embarked on quantitative easing."

"The world hadn't seen negative rates before. And it's expanded significantly over the past two years. Investors are now asking how these moves are going to affect a whole range of asset classes and the banking system."

Heightened uncertainty across Europe ahead of next month's EU referendum pushed up gold demand across the bloc, the council said.

It noted that bar and coin demand in the UK climbed by more than 60pc both in value and volume terms amid heightened Brexit fears, while improved gold access for investors made purchases easier.

The council also said that there were "anecdotal reports of a rise in demand for safety deposit boxes in Germany as some customers looked for alternative options in case of further interest rate cuts".

Jewellery demand fell, largely due to weaker Indian and Chinese markets, which were blighted by strikes, while buyers were turned off by high prices.

"The first quarter was a rollercoaster rise for anyone investing in equities so many turned to gold. There may be a unique factor affecting the UK here, and that's the spectre of Brexit on the horizon. It's another bit of uncertainty to add to our quite long list of uncertainties," said Mr Hewitt.

"Lots of investors think it makes sense for them to be protecting themselves around the implications of that."

Telegraph.co.uk

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