Why 2016’s gold rush is already running out of steam
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Gold has been hailed as the “new black” in 2016. But after the precious metal’s best start to a year since 1980, signs are emerging that a newfound love for base metals could overrun the gold rush, says Citigroup.
Gold GCJ6, -0.17% is up almost 20% this year so far, easily outperforming copper HGK6, -0.26% and aluminum as well as other asset classes, including equities. That’s largely because concerns over a serious economic slowdown in China and plummeting oil prices triggered a flight to safety away from riskier choices.
However, with global market jitters recently subsiding as indicated by the CBOE Volatility Index VIX, +4.45% below, it may be time to switch into the industrial metals, the Citi analysts said in a note on Monday. VIX is often referred to as the broader stock market’s “fear gauge.” It tracks option market demand for short-term stock protection.
“Gold likes [economic uncertainty] because it dons its mantle as an ‘insurance hard asset’ at such times. When nerves settle, gold typically underperforms industrial metals as confidence in the new economic upturn grows,” the analysts said.
“With that nervousness subsiding, we may now be in that transition period between gold being the front-runner and that moment when the baton is passed on to the industrial metals,” they added.
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