Gold: shining haven or red-hot risk?

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  Martin Raab
  Investment-Stratege

At USD 3,838, gold has just reached a magical price mark. The price of gold is currently so high that even experienced market participants have to look twice. The precious metal is climbing from record to record as if to prove that gravity on the financial markets is just a non-binding recommendation. Investors are celebrating the upswing as if they had rediscovered the physical version of the “gold standard”: sparkling, timeless and supposedly immovable. In addition, financial instruments such as the CME 1-Ounce Gold Future and widely accessible gold ETFs have recently fueled demand significantly. Massive inflows into the well-known gold ETFs have come from the USA itself in particular in recent months.

But like any enthusiasm on the markets, this one also tends to tip over into exuberance. The atmosphere is reminiscent of a cocktail party, where everyone is gripped by a spirit of optimism when the cold drinks run out. Suddenly, there’s a traffic jam at the front door. For months now, fund managers, hedge fund managers and private investors have been caught up in the gold party. In London, Zurich, New York and Dubai, numerous hedge funds are involved in “gold momentum trades” – in unison with gold derivatives or gold ETPs or ETFs. Why did they buy? Because everyone does. So much for rational buying decisions.

Although the trading performance is still respectable, history nevertheless warns us to be cautious: when even the safe haven becomes an object of speculation, the actual protective function quickly erodes. Gold no longer looks like a rock in the surf, but more like an overheated beach promenade in the high season. The exaggeration is so obvious that comparisons are allowed. Gold is now almost as overvalued as Bitcoin at USD 150,000 – and that is anything but a brilliant hedge against new crazes from America.