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Why Gold’s Safe-Haven Demand Remains Tepid

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Nov. 20 2020, Updated 4:55 p.m. ET

Gold’s safe-haven demand is weak

Gold has not benefitted as much as market participants would have expected from the recent turn of events in China and Greece (GREK). Gold is often touted as the safe-haven asset that investors embrace in times of economic and political uncertainty. Its investment appeal is also upped when alternative asset classes like equities and bonds are not doing well. However, this hasn’t been much of the case when Chinese markets came slumping down.

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Other safe-haven assets

Investors have turned to other safe-haven assets, including sovereign debt and the US dollar. US monetary policy expectations continue to drive the gold prices. As we’ve seen in the previous parts of this series, the US economy remains on a gradual but steady path of recovery. This has kept the rate hike expectations more or less intact for later this year or early next year. This along with a stronger US dollar is weighing down on the sentiment for gold. Investors are instead opting for assets like the US dollar, which will not lose its appeal even if the Fed hikes interest rates.

Gold outlook

In addition, India, the world’s number two gold consumer, has been discussing the introduction of gold-price-linked sovereign bonds to lower gold imports. The intent behind this would be to reduce India’s current account deficit and also to monetize gold investments. The US dollar’s steady march upwards along with waning physical demand will be negative for gold (GLD). It will also be negative for gold stocks, including Goldcorp (GG), New Gold (NGD), and AngloGold Ashanti (AU). New Gold forms 1.9% of the VanEck Vectors Gold Miners ETF (GDX).

For the latest updates, visit Market Realist’s Gold ETFs page.

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