Gold has done 'worse than nothing' in 2015

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Gold is losing its status as a safe haven asset.

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Markets have been jittery over the past few weeks with all that's going on in Greece and China.

In moments like these, gold usually benefits as one of the safer commodities to be invested in.

But gold has been all over the place, and after a selloff on Tuesday, it sank even further to a fresh three-month low.

In a note Wednesday, Macquarie analysts ask, "What is left of gold's status as a safe-haven?"

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Here's more (emphasis added):

Put simply, this year feels as if has had more than its share of drama - terrorist attacks, airline crashes, conflict in the Middle East and most recently a plunge in the Chinese stock market and the now very real prospect of Greece defaulting on its debts and being forced to leave the Eurozone. But as of 7 July, gold has done nothing. In fact worse than nothing - the price of gold is 3% lower than it began the year (the red line in fig 1). Investors have also shown no reaction to the events - with gold ETF holdings flat on the year, and futures positions down just over 100t.

On Tuesday, gold tanked with other commodities in a broad selloff. Gold had held steady since the Greek "No" referendum result on Sunday that sent global markets into turmoil, even though the US dollar - another safe haven asset - strengthened.

On Wednesday morning, gold was up by about $7 - less than 1% - to around near $1,159 an ounce.

Macquarie analysts offer three reasons why investors are not rushing to buy gold despite all the chaos in markets:

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  • Things may not be that bad. For some perspective, Greece contributes just 2% of Eurogroup gross domestic product (GDP) and 0.3% of global GDP. And despite crashing into a bear market, Chinese stocks are still 15% higher than where they started 2015. Global stocks are also virtually unchanged for the year.
  • The number of large institutional investors interested in gold is far smaller than it was before prices crashed in 2013. Also, demand for gold tends to increase when there is a perceived risk of inflation, but the events in Greece and China have been deflationary, in the analysts' view.
  • Despite its safe-haven reputation, gold is still just a commodity, and so a selloff like what we've seen this week would likely also affect it.

Here's a chart of gold for the year, showing that it is sinking towards its low, even though it's regarded as a safe haven and there's chaos in markets.

Screen Shot 2015 07 08 at 10.13.17 AM

Macquarie

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