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Gold gains as stocks tank worldwide, no surprise

posted onOctober 12, 2018
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Gold surged to its highest price in more than two months on Thursday as the selloff in shares spread worldwide, sending investors toward safe-haven assets. 

The precious metal, whose price has steadily fallen over the past six years, reached its highest point since August 1, jumping $34.20, or 2.9% on Thursday, to settle at $1,227.60 an ounce, according to FactSet data. 

Despite gold's sharp gains, Michael Armbruster, managing partner at Altavest, told Marketwatch he was not surprised by the yellow metal's rally "given what is going on with stocks and bonds."

Economic and geopolitical uncertainty traditionally drives investors to reliable metal markets.

"Gold is a natural safe haven and has been very out of favour for a while," Armbruster told the finance website. "I think we could see a rally to $1,300 at some point before year end."

Bank of America Merrill Lynch estimates the gold price to climb above $1,300 by the end of the year, with a forecast of $1,380 by 2020, while Capital Economics says gold will rallies to $1,350 an ounce next year.

A Reuters survey of 35 analysts and traders conducted this month forecast an average gold price of $1,301 an ounce in 2018 and $1,325 in 2019. 

In India, the world’s second-biggest consumer of bullion, gold imports in September dropped more than 14%, according to the estimates of precious metals consultancy GFMS, as a rally in local prices due to a depreciating rupee has hurt demand. The drop in demand from Indian importers could weigh on world gold prices, which have dropped 8.8% so far this year. 

central banks gold reserves

(Net central bank gold purchases since 2010 Source: Metals Focus; GFMS, Thomson Reuters; World Gold Council)

Gold is also an important part of central banks’ foreign exchange (FX) reserves. 

According to the International Monetary Fund (IMF), at the end of H1 2018 central banks collectively owned US$1.36tn of gold, around 10% of global FX reserves. Central banks added a net total of 193.3 tonnes (t) of gold to their reserves in the first six months of 2018, an 8% increase from the 178.6t bought in the same period last year.

This marks the strongest H1 for central bank gold buying since 2015, the World Gold Council said.