Political uncertainty across Europe could prompt renewed interest in gold

TO GO WITH AFP STORY BY HUI MIN NEO
Gold bars are stacked on April 6, 2009 at a plant of gold refiner and producer Argor-Heraeus in Mendrisio, in the southern Swiss canton of Ticino. While the world grapples with the biggest economic crisis since the Great Depression of the 1930s, demand for the firm's watch and jewellery components business has slumped as Swiss and Italian watchmakers trim production. Meanwhile, investors are hoarding gold bars -- an age-old insurance in times of war or calamities -- sending demand for the group's bullion production soaring. To cope with the new balance of demand, Argor is shifting manpower from its semi-finished products division to gold production and is running day and night. With orders for gold bars piling up, delivery times now stretch to two months instead of 10 days.               AFP PHOTO / Sebastian Derungs (Photo credit should read SEBASTIAN DERUNGS/AFP/Getty Images)

A precious metals analyst for Standard Chartered Bank believes rising political uncertainty across Europe could prompt renewed interest in gold.

Writing in the World Gold Council’s latest edition Gold Investor, expert Suki Cooper, says unchecked US inflation, Brexit negotiations and the uncertainty surrounding Trump’s international policies could trigger another bout of hedging and safe-haven demand for gold.

She states: “Although gold is often at the mercy of US policies, they are not its sole macro driver. Significant upside risk lurks in 2017, and it sits outside the US: namely, the potential shocks stemming from the shifting political plates in Europe. Gold draws broad-based safe-haven demand in the event of systematic risk such as the great recession, and the elections across Europe this year have scope to shock markets again.”

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Systemic risks have already materialised across Europe over the past few years but they have not been sufficient to drive resilient material demand for gold. So what makes 2017 different? Cooper says it’s because the concern is “broad based”.

She continues: “Isolated or local events may drive local demand for gold, but events that reverberate through the global economy or those that are not easily hedged with mainstream assets can result in a renewed search for gold.

“Last year, markets had to digest Britain’s vote to leave the European Union (EU) and the unexpected victory of Donald Trump in the US presidential election. This year, markets will focus on three political events: first, the general election in Netherlands; second, the presidential election in France, and third, the federal election in Germany. In each

case, gold could suffer initially, as investors seek liquidity, following increased concern that anti-EU parties could succeed in upcoming elections, threatening the future of the EU. Thereafter however, gold’s safe-haven appeal could shine again. A weaker euro and a stronger gold price have co-existed before.”

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