Johns Hopkins professor advises central banks to buy gold

03 Feb 2017
Financial Nigeria


Unease in equity markets over geopolitical uncertainties fuels gold price rally. 

Steve Hanke, Professor of Applied Economics, The Johns Hopkins University, Baltimore

The attraction of gold as a safe-haven asset increased this week as investors abandon riskier assets due to geopolitical uncertainties arising mainly from the policy direction of the new administration of United States President, Donald Trump.

The yellow metal reached a 12-week high on Thursday as April Comex gold futures settled at $1,219.40 an ounce, up 0.92% on the day.  

Professor of Applied Economics at the Johns Hopkins University, Steve Hanke – who is also a known trader – told Kitco Metals, leading retailers of precious metals, “Uncertainty in general…and all kinds of things going on [right now] are favourable to gold.”

“If I was advising a central bank, which I do, the recommendation is buy,” Hanke noted.

As weak global economic growth prevails, with low or negative interest rates in many matured markets, the attractiveness of gold as a safe-haven asset has been renewed. According to MarketWatch, world central banks have been purchasing average 350 tons of gold a year over the past eight years. Around 20% of all the gold ever mined is held by central banks and governments. The biggest official holdings is by the U.S. Treasury with 8,134 tons.

A Kitco senior analyst, Jim Wyckoff, said the marketplace is buzzing about an alleged contentious conversation between President Trump and Australian Prime Minister, Malcom Turnbull, regarding refugees in Australia that were to be transferred to the U.S. This news and other unfolding developments are being blamed by some for the sense of unease in equity markets that is benefiting gold.

Another issue highlighted by Hanke is Greece’s debt issue and the uncertainty surrounding the country's ability to make payment due to its creditors in less than one month’s time. He said if the Greek government is unable to meet its obligations, the fallout could benefit gold as a safe-haven for investors.

“There’s a great deal of uncertainty in Europe for 2017 – lots of elections and unattractive candidates across the board. The only good thing going on is that the ECB (European Central Bank) has kept…the money supply growing at a modest pace,” he added, stating that money supply is a key determinant of nominal growth.

Despite the many wild cards in Europe, Hanke told Kitco that he remains faily optimistic as he expects to see moderate growth.

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