The price of gold is enjoying its best run in 30 years as it strongly re-emerged in popularity among nervous investors and experienced its best quarter since 1986.
Gold has risen by 18.2% over the first quarter of 2016 as the influx in gold ETFs reached record breaking heights, while the price per troy ounce sat at $1,233 on March 23.
While the Brussels attacks on March 22 could further increase moves to safe haven assets, the main drivers of this increased demand are seen as international politics but more importantly, monetary policy having a strong influence on gold in the past couple of weeks.
Against this backdrop, the gold price has moved into the so-called 'golden cross', where short-term moving average has surpassed its long term moving average, but where does it go from here?
Getting to grips with the golden cross
The golden cross often precedes a bull market in the near future as it signals the stock’s value is headed higher, according to market commentators. Loïc Schmid, the head of the asset management and CIO at Geneva Swiss Bank, foresaw gold moving higher in mid-2015.
His prediction has proven correct with the precious metal receiving the largest inflows in seven years in February. However, Schmid is now scaling back his exposure.
‘Investors are choosing gold as a hedge against hazardous monetary policies, this is a very real story as they are scared about what comes next,' he said.
‘A lot of CTAs and hedge funds were short gold in 2015. During the China chaos in January this year they began covering their positions. Collectively these funds are huge so when they reposition, they really move the market. Short covering by this area of the market is what essentially moved gold prices.
With regards to the 'golden cross', Schmid said there is resemblance between 2014’s strong start and now. However, the latter period was soon followed in March by a premature halt.
‘I remain positive in the long term as I think central banks have gone too far. However medium term we have recently scaled back our position a little as now everyone is talking about gold again and we are foreseeing a re-run of 2014’s false start.’
Making the most of miners
As gold prices continue to rise, investors are doing their best to gauge the moment the balance will tip. However, gold equity investors continue to face a torrid time in performance terms.
Florian Siegfried (pictured), Citywire AA-rated manager on the Precious Capital Global Mining and Metals fund, which is the leading fund over both one and three years in his sector, has maintained a bullish stance on gold specifically, while also being positive on related investments.
Siegfried, speaking ahead of the most recent rallies, believes markets are at the early stages of an emerging bull market for gold and gold stocks, therefore, gold miners are beginning to look appealing having been out of favour for some time.
‘A number of high-quality, mid-tier gold mining companies – which took advantage of the previous downturn to bolster their future production profile – have potential to provide an attractive entry opportunity for value and growth-oriented investors,’ he says.
Depressed valuations over the past couple of years have created value in the sector, Siegfried said. ‘It was clearly a buyer’s market that allowed buyers to acquire high-quality gold assets on favourable terms.'
‘It is all about buying low, effective project development and the ability to turn this into future free cash flow. In my view, numerous M&A transactions of the past few months will turn out to be value-accretive for long-term shareholders of the acquiring companies.’
Siegfried outperformed in his Equity - Gold & Precious Metals, sector with total returning 45.9% in Swiss franc terms over the 12 months to the end of February 2016. This compares to an average manager loss of 7.9%, also in Swiss franc terms, over the same period.