GMO Emerging Thoughts: Present and Emerging Risks to the Gold Trade - By Amit Bhartia and Matt Seto
The
notion of gold as a hedge against systemic risks is flawed. We believe that the
concept of gold’s role as an insurance policy needs to be narrowed
significantly.
Last
year we argued that relying on conventional wisdom to analyze gold price
movements is naive. Conventional wisdom would lead us to believe that gold
price movements are driven solely by the actions of developed markets’ central
banks. We believe this view is misinformed and that the available data does not
support it.
In
that paper, we argued instead that the key driver of the significant rise in
gold prices since 2000 has been the emerging markets consumer. Between 2000 and
2010, consumers in emerging markets accounted for 79% of total demand. Conversely,
ETF purchases accounted for only 7.5% of demand and central banks in aggregate
were net sellers.
This
expanded framework demonstrates that gold is also positively exposed to
pro-cyclical factors in the emerging markets. Moreover, given the cyclical
challenges gold’s key consumers may be facing, the value of gold as insurance should
be questioned.
Over
the past 13 years, the impact of emerging markets on gold prices was
unequivocally positive: emerging markets drove gold prices higher. However,
this has not always been the case through history and, we believe, will not
always be the case going forward. Emerging markets can be both a positive and a
negative driver.
No comments:
Post a Comment