A world where animal spirits are running wild is also one that has temporarily divorced from fundamentals. Experience tells us this often doesn’t end well.Â
The wealth transfer from Baby Boomers to their offspring, which is in full swing, has got the taxman’s full attention, especially as it pertains to capital gains payments, trust structures and potential breaches of the Tax Act’s Division 7A.
Gold losing its shine – and that’s a good thing
Historically, institutional investors don’t invest in gold. That is for individuals and, even then, professional advisors will often question the wisdom. But every now and again gold goes for a run in price and people have another look at their strategy.
With the increasing popularity of ETFs, even among pension funds, access to the market is a lot easier than it used to be large investors.
But as a supposed hedge against inflation, which is its oft-quoted key attribute, gold does not actually stack up. Its run of the past several years, for instance, has been against a backdrop of low or negative inflation in most countries.
And recent performance is looking decidedly shaky. It has now suffered the longest run of monthly price falls since 1997 with a fifth consecutive fall over February.
According to Investment Week in the UK:Â Spot gold fell through $US1600 an ounce for the first time since August and finished trading in February at $1,578, having retreated 12 per cent from a peak just below $1,800 back in October.
The gold price fell 5 per cent in February alone as demand for the safe haven metal declined amid signs of a turn in the economic cycle and positive gains for stock markets around the globe, continuing a trend seen in the final quarter of 2012.
Investment Week said: “Gold ETFs – a key driver of the gold price – have seen massive outflows in February, with SPDR Gold Trust (GLD), the world’s largest gold ETP, on track for its largest monthly outflow since launching in 2004. Smaller gold products such as the Comex Gold Trust and ETF Securities’ GBS fund have also reported declines…
“Late last month, and somewhat late to the party, Goldman Sachs also revised down its gold spot price forecast by a huge $200 plus.
“It now sees the spot price at $1,615 in three-months’ time, and at $1,600 in six-months’ time.”
Goldmans said: “Most of this price decline has coincided with a
gradual increase in US real rates, reflecting the combination of better-than expected US economic data, a more hawkish interpretation of recent Fed communication and a lower level of US fiscal and European sovereign
risks.”
About half of the world’s gold production goes to making jewelry, with the world’s biggest customers being India, followed by China.
