Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at

Why gold is no longer a safe haven

by David Campbell on Jun 06, 2012 at 00:01

Why gold is no longer a safe haven

Gold historically occupied its unique place in human fascination because it never tarnishes. In investment terms however, the precious metal’s appeal is looking increasingly in need of a polish.

It’s not just the pricing disappointment, although at $1,568 an ounce, down more than 17% since its September 2011 peak of $1,898, there is certainly that. Its hallowed diversification and safe haven attributes are also looking increasingly threadbare.

Its correlation with the Dow Jones Industrial Average has spiked sharply since last September’s price high, from a negative figure of -0.874% to a positive 0.857%.  

That correlation figure is interesting because unlike capital pricing, it is not explicable by looking at dollar appreciation. Gold is now being sold, not bought, through periods of portfolio deleveraging.

‘There is a feeling that gold pricing is in for a period of weakness,’ said Citywire AAA-rated Tony Lanning of the Henderson MultiManager Absolute Return fund .

Lanning had held a ‘structural’ 3% stake in gold for the 3.5 year life of the fund, until April, when he sold it down to 2%, saying some of its defensive attributes had been tarnished by investor disillusion.

‘Gold has been a genuine diversifier, but may have got a bit ahead of itself. In the short term, it could be that it trades as a risk asset, as people reduce their exposure,’ he said.

Some of that trade is already being unwound, with the mighty SPDR Gold Trust falling from a peak of £4.6 billion to £4.1 billion in the last six months, a more than 10% decline. While money has been volatile, a 24-hour outflow of £900 million last week briefly drove the trust from bid to offer.

Much can be explained by dollar appreciation. Versus a basket of currencies, the greenback has appreciated 5% since last September as the US Federal Reserve disavowed further quantitative easing.

Robin McDonald, manager of the £780 million Cazenove Multi-Manager Diversity fund , who sold down his previous 3% stake in gold in September, views the behavioural change in gold pricing as a function of dollar appreciation, rather than a separate issue.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home

As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

Sponsored Video: Barings on investing in Frontier Markets

From Nigeria to Pakistan and from Kenya to Kuwait, frontier markets are catching investors' attention as never before.

More about this:

Look up the funds

Look up the fund managers

  • Tony Lanning
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Robin McDonald
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

What others are saying


On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet