Mumbai: Global economic and political instability (including geopolitical tension) has prompted investors to resort to safe haven assets in 2016, with bullion being the most preferred investment instrument this year.
Gold is back after a three-year bear market and has emerged as the best performing asset across classes. The yellow metal has risen close to 25% since 1 January, the best half-year performance since 1980, Bloomberg data showed.
Silver, following gold, has appreciated 28% in the first six months, leaving other assets such as the US and German bonds, Japanese yen and the US dollar far behind.
The US 10-year bond yields are down close to 80 basis points (bps) since 1 January, while the Germany 10-year bond yields are down 73 bps. Japanese yen has risen 17%, while the dollar index is down 2.53%. One basis point is one-hundredth of a percentage point.
Analysts said the shock result of UK’s EU referendum vote last week further strengthens bullion’s appeal as a safe haven asset.
The past three sessions following the Brexit vote saw gold prices spike about 5%, while silver advanced about 3%.
Strength in the US dollar was the major contributor to weakness in gold and commodity prices for the past few years. However, increasing uncertainty about economic and political developments, low-to-negative interest rate environment as well as doubts over global economic recovery post the collapse of Lehman Bothers in 2008 have led to demand for precious metals, analysts said.
Ronald Peter Stoeferle, managing partner and fund manager, Incrementum AG in Liechtenstein, attributes the