Gold … safe haven from the specter of global slowdown

Researcher Shatha Khalil *

Gold is the investor’s safety belt during the global economic downturn , when investors are increasingly afraid of the specter of a global slowdown, and the global economy is in a coma of recession again , following the financial crisis of early 2008, many investors are turning to buying assets of Safe haven from the yellow metal “gold”, the Japanese yen, and US treasury bonds, especially with the escalating trade war tensions between the United States and its Chinese counterpart, increasing tariffs on some imports of goods from both parties, and worsening the economy crisis due to the outbreak of trade war fires , which is expected to end with the global economic recession, and a global economic crisis again .

Gold has been, and still is, a safe haven and store of value over the centuries, and traders turn to it even though it has no financial benefits, because the margin of loss remains lower than most other assets, unlike US dollar investment.
Gold is affected by several different factors, including the reverse correlation with the US dollar, which means that if the US dollar rises, there is a possibility to see gold prices decline and vice versa, the price of gold is also affected by several different factors, including the number of annual production, central banks, important economic data, For example the US Federal Reserve meeting or the ECB interest rate decision, it is known that the gold prices are priced in US dollars.

The decline in the confidence of individuals in the dollar currency is due to that it is affected by the various crises, in addition to the inability to control the gold metal by any organization or government agency and the reason because it is affected by the forces of supply and demand , thus in war times the power and price of gold are risen compared with other currencies and goods as a result of the rise of demand on it . It means high political, economic and social tensions.
In addition, the characteristics of gold enhance its role as a safe haven, where individuals consider it a safe haven to save their wealth, because unlike banknotes gold does not lose its value and does not damage over time, but gold is traded anywhere in the world, because of the ease of dissolution and formation with maintain its core value.

World Gold Reserves:
According to the World Gold Council statistics in 2018, the United States of America ranks first in the world in gold reserves, which amounts to 8133.5 tons, with a cash value of $ 404 billion, while Germany comes with a reserve of 3378.2 tons of gold, with a cash value of $ 167.9 billion, then comes the list of the ten largest holders of gold reserves in the world , Italy comes with 2451.8 tons of gold, with a cash value of $ 121.9 billion, followed by France with 2435.8 tons, with a cash value of $ 121.1 billion, China with 1823.3 tons, and a cash value Reaches 90.6 billion dollars, Russia with 1,498.7 tons, with a cash value of 74 $ 4 billion, Switzerland with 1,040 tons, cash value of $ 51.7 billion, India with 557.8 tons, cash value of $ 27.7 billion, Turkey with 474.4 tons, cash value of about $ 23.6 billion.

As for the Arab countries, Saudi Arabia ranks first in the Arab world in terms of gold reserves, which amounts to 323 tons, and then comes the State of Lebanon with gold reserves amounting to 286.8 tons, and the World Gold Council is a global organization specialized in the gold market, founded in 1987 and currently based in London, this Council is concerned with all aspects of the precious metal economic, and consists of major companies working in the field of gold mining.

Over the past few years, Russia and China have tended to buy gold and become one of the world’s largest buyers of precious metal, after their central banks have tended to buy gold since 2014 , although China is the world’s largest gold producer, its stock Gold was small compared to its competitors, especially in terms of macroeconomic size.

Lastly , a haven remains safe according to the type of investor, which is divided into two parts : The first is the “adventurous investor” who tends to speculate and seek short-term investments, in order to reap the largest and fastest return, it doesn’t thinks of a safe haven , only when global economic crises occur. It is only within the scope of investment that its value remains constant, but rises in economic conditions and crises, as for the “conservative investor”, it tends to invest long-term, and its safe haven is confined to the scope of risk-free investment.

By definition, a safe haven is an investment that is expected to be maintained or increased in times of market volatility and crisis, which investors resort to in the event of losses in the event of a market decline.

The most important economic events that directly affect the price and quantity of gold that I have known since 2016, is the intention of Britain to leave the European Union, after the referendum on June 23, which saw the rejection of the camp of rejection of European unity by 51.9%, the result which many economists considered a major shock unexpected for the EU and the global economy in general.

Gold prices rose ahead of an important vote for British lawmakers on the British withdrawal from the European Union, but expectations of a trade agreement between the United States and China limited the gains of the yellow metal.

Gold rose 0.3% to $ 1487.98 an ounce, and gold in US futures rose 0.2% to $ 1491.10 an ounce.

Euro zone government bonds fell on Monday ahead of an important parliamentary vote in Britain that will determine whether Britain will leave the EU under an agreement at the end of the current October.

After the results of the referendum, the financial markets witnessed sharp fluctuations, and lost during the day following the referendum about $ 3 trillion, and the pound sterling and the euro against the US dollar fell by 11% and 4.5%, respectively, to record the largest decline in one day with the arrival of the GBP / the US dollar to the lowest level during 31 years .

Equity markets witnessed a similar decline, with the DAX, CAC 40 and S&P down 6%, 8% and 3% respectively.

The effect on the yellow metal was as follows:
The yellow metal was one of the biggest beneficiaries from the Brexit referendum. Gold is historically known as a safe haven for investors in times of global crisis and periods of volatility and uncertainty in the stock and currency markets.

Immediately after the June 23 referendum, gold saw a record high of 4.5% to breach the resistance level at $ 1300, the level from which it bounced twice in 2016 to reach its highest level in two years to reach the level of 1366 after two weeks of “Brexit”.

Gold has risen 28% since the beginning of 2016, rising from 1060 to above 1360 by the end of June, supported by fears of slowing of global economic growth and price fluctuations in stock and currency markets.

Yellow metal prices are likely to continue to rise as financial market uncertainty and the continuous uncertainty about the impact of Brexit from the EU on the euro.

“Sino -US Trade Negotiations”
The optimism generated by progress in Sino-US trade negotiations has limited the gains in the yellow metal, which has boosted demand for riskier assets.
Chinese Vice Foreign Minister Yu Qing said China and the United States had made some progress in their trade talks, a day after US President Donald Trump spoke of optimism about a deal, while White House adviser Larry Kudlow said the tariffs could be withdrawn on Chinese goods in December if the talks go well.
On the other precious metals, silver rose 0.4% to $ 17.64 an ounce, extending gains for the fifth session respectively, platinum rose 0.2% to $ 889.27, and palladium gained 0.1% to $ 1760.01 an ounce.
Gold markets are also awaiting interaction with the accelerating changes on the US-China trade truce, gold futures prices in the US market fell sharply, with the dollar rising against other major currencies, and easing concerns about the US-China trade dispute following the two countries’ agreement to Resumption of trade negotiations.
The International Monetary Fund said the US-China tariff war was the reason for its decision this week to cut the ceiling for global economic growth forecasts for 2019 from 3.2 percent to 3 percent.

As a result of this, we conclude that the tendency to think about safe haven will happen when the global economic crisis occurred , and the safe haven is confined only to the scope of investment that its value remains constant, but rise in economic conditions and crises, and that the successive rises of gold, from time to time, confirm that the Investors are unwilling to sell on the current prices, as the yellow metal is likely to take a more upward trajectory in the coming period after the escalation of the situation in Lebanon and the instability of the situation in Syria after the recent Turkish intervention, while the current prices reflect the geopolitical situation in the region and confirm that all Looking for safe havens.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies

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