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The global economy continues to slow and in response, investors have begun to heed the global slowdown, sending prices of safe haven assets sharply higher, dragging real yields sharply lower globally and sending investors into gold’s warm embrace, according to analysis team at TD Securities.

Key Quotes

“As money managers incorporate the deteriorating macroeconomic signals into their expectations for equity earnings, the case for gold as a tail risk hedge is growing.”

“Considering gold as an equity hedge, ETF purchases have soared some 20% year-on-year, with the growth in holdings showing no sign of slowing down as of yet. In fact, the strength in gold’s prices is entirely in line with the rise in investor demand based on a historical analysis of holdings, which provides little evidence that investment demand has peaked, as is suggested by other positioning metrics.”

“Aside from holding gold as an equity hedge, with a high proportion of real rates globally in negative territory, purchasing gold as an alternative to bonds is particularly attractive given the paradigm shift narrative, which argues that central bank policy is nearing its limits, opening the door to non-conventional policies which could be particularly accretive to gold prices.”

“We suspect that rising global risks will ultimately persuade a herd of money managers to diversify their assets in gold, which could argue for a substantial period of strengthening investor appetite for bullion diversifers. After all, an inverted yield curve and low real rates have driven opportunity costs for holding the yellow metal to multi-year lows.”