Physical Gold Demand Jumps as Recession Risks Rise

Image © Adobe Stock

- Investors increasingly fearful of global recession

- Physical demand for gold rises

- Gold price rally enters fifth consecutive day

The Pure Gold Company are today reporting a 378% increase in first time investors purchasing gold bars and coins over the last seven days (compared to the weekly average for 2019), with many deeply concerned there will be a severe global recession driven by systemic geopolitical risks.

The company also reports a 63% increase in financial professionals and bankers investing in gold over the past seven days with investors expressing concerns over an escalating global trade war between the U.S. and China.

However, the catalyst for the most recent spike in demand for gold appears to have been the tariffs imposed on Mexico by Donald Trump last week which adds to fears that a slowdown in global trade could potentially spark a global recession with enduring consequences.

The U.S. Dollar has fallen during the course of this time, suggesting the world's number 1 currency is not considered a 'safe haven' in this environment.

"The most likely argument is that the movements seen since the middle of last week have been related to deteriorating risk sentiment," says Simon Derrick, Chief Currency Strategist with BNY Mellon. "This is certainly consistent with the increased bid for not just the JPY, but also the CHF and gold since Wednesday, along with the USD’s rather more uninspiring performance over the same period."

The Pure Gold Company say those clients they have seen buying physical gold have also been liquidating exposure to equities and corporate bonds in reaction to unpredictable currency movements and market volatility.

"Instead they’re purchasing physical gold, which tends to increase in value during volatile times. These investors know that equity and bond markets have an inverse relationship with gold, and this has played out over the last two weeks with the FTSE 100 index down over 2% and the gold price up almost 5% in the same period," says Josh Saul, CEO of The Pure Gold Company.

Gold prices have risen for four consecutive days now and are trading at a fresh three-month high amidst 'safe haven' buying in the wake of U.S. President Trump’s imposition of tariffs on Mexico which "fed fears of an ongoing risk to global trade and economic momentum," say researchers at Swiss investment bank UBS.

The price of spot gold is today quoted at $1328 an ounce, it had been $1274 ahead of the tariff news.

UBS say the decision by the Trump administration to pursue tariffs on Mexico were a surprise, "and are a substantial downside risk" for the U.S. economy.

"Both consumption goods and intermediate/capital goods would be hit. Tariffs start small, but could get multiplied for auto parts. The ultimate escalation is unclear. The effect on the auto industry is critical," says Seth Carpenter, an Economist with UBS.

The Pure Gold Company say since the beginning of May, the've seen a 412% increase in the amount of people remove exposure to equities within their pensions or SIPPS to purchase physical gold within the same vehicle.

Investors are reporting they are worried that a global recession could wipe out years of retirement savings which for many elderly clients would be difficult to claw back.

“Our clients are not purchasing gold purely for growth. For many, physical gold is a hedge against the uncertainty of both currency movements and market volatility. For others, it’s about removing wealth from the global banking system, which is susceptible to counter-party risk, and putting it into something that tends to increase in times of uncertainty. They appreciate the fact that gold is a universal form of currency and is easy to convert back into cash. In every recession or moment of severe uncertainty gold becomes the go to currency. The turmoil won’t last forever but gold is a sound option while there are so many layers of uncertainty,” says Saul.