Gold price timid amid North Korea and rate hike fears; plus three ways to value gold
The gold price was little changed on Monday, supported by safe haven interest amid rising geopolitical tensions over North Korea and a weaker dollar, according to Reuters.
This morning the controversial regime fired four test missiles near Japan’s northwest coast, prompting fears of escalating geopolitical tensions towards conflict.
Daniel Hynes, an analyst at the Australia and New Zealand Banking group ltd. (ANZ), was quoted by Reuters as saying “there is still plenty of critical uncertainty supporting safe-haven buying and the news out of North Korea certainly has seen that side of the market quite active again”.
Spot gold edged down 0.1 percent to $1,233.18 per ounce, while spot silver fell 0.7 percent to $17.83 per ounce, and platinum inched lower by 0.2 percent, to $991.60.
FxStreet reported there was a growing consensus that the Federal Reserve would seek to raise interest rates at its meeting on March 14-15, and that this has shored up the value of the dollar, and so reduced flows towards dollar-denominated commodities such as gold.
In other news, the Wall Street Journal has published a guide to valuing gold. It points out that:
- Some studies say that bullion is 46% overvalued, while others say 35% undervalued, and it’s not easy to tell which one is right
- There are three primary reasons why people hold gold: as an inflation hedge, as a hedge against political uncertainty and as a way to get portfolio diversification.
- The relationship of gold and inflation is loose and volatile, except in the very long run, and is valued 46% higher than the inflation-based fair value of $860.
- The Economic Policy Uncertainty Index (EPU) shows a notable correlation with gold, and puts it at 35% undervalued, so geopolitical uncertainty looks to be a better reason to invest.
- Some invest in gold to diversify their portfolio, as the assets people usually invest in have an inverse relationship to gold. However, over the past three decades in which the financial markets suffered their worst returns, gold was more or less evenly divided between rising and falling.
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