Several exchange-traded funds (ETFs) that hold gold have surged by a quarter in recent memory. The reason for the rise in gold prices? Central banks - at least according to a report by
Bloomberg.
Bloomberg noted that gold has been 2016's best performing major metal after silver due to rising concerns over negative interest rates in Europe and Japan and ongoing uncertainty surrounding a U.S. Federal Reserve tightening of its rates.
"Firstly, the negative interest rate environment and quantitative-easing policies are reducing the pool of suitable investment options, and making gold less costly to hold," Bernard Aw, a strategist at IG Asia Pte told Bloomberg. " "Second, lingering fears of competitive currency devaluations and potentially fresh bouts of market volatility encourage safe-haven demand."
Aw also noted that even if the Fed raises its interest rates, the prevailing rates will still remain "very low."
Meanwhile, billionaire investor Paul Singer suggested that the rally in gold has just began. The manager of Elliott Management told his clients last month that if investors' confidence in central banks across the world "continues to weaken," then the "effect on gold could be very powerful."
Finally, central banks and governments across the world themselves are large buyers of gold. Bloomberg cited a report from the World Gold Council which suggests that nations could buy up to 600 tones of gold this year, compared with 566.3 tons last year.
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