Looking for a Golden touch?

This blog was published on 24/07/18 and does not constitute advice, nor should it be seen as a personal recommendation from Societe Generale.  Information quoted within may be out of date at the time of your reading this blog.


Whilst a certain individual may be adorning their wardrobe with a new pair of golden boots, for most gold is more typically seen as a defensive investments measure, often referred to as a safe haven asset. But the gold price has been in decline this year as expectations for higher interest rates over the coming months pushes the dollar higher and dollar-denominated gold lower. Gold spot hit $1,232.8 an ounce on 17th July 2018, its’ lowest in the last year.

Investors tend to flock to gold in times of uncertainty e.g. currency devaluation or falling markets, and is often used as a hedge against inflation. Indeed, it is gold’s low correlation with the markets, i.e. when shares drop in price gold is unlikely to move down with them and is more likely to increase, that makes gold a staple diet of any diversified portfolio, helping to reduce volatility.

In extreme market conditions where certain investments can become hard to sell, the ease of liquidating a gold holding has additional benefits. For example in 2008, when markets collapsed and it was hard if not impossible to sell certain assets, the gold market remained active.

The price of gold can be volatile in the short term but has always maintained its value over the long term, offering not just long term investment and hedging opportunities but also shorter dated tactical investments, especially when taking a leveraged position such as when using leveraged ETPs (Exchange Traded Products).

The gold spot price is the base price at which gold is trading at the time, the gold futures price is the base price plus the time horizon over which the future is being held. For example, the October 2018 future contract on CME was trading between $1226.0 and $1233.4 an ounce on 18th July 2018. Spot closed on 17th July 2018 at $1232.8 an ounce.

This year, investors are facing threats of rising interest rates in the US and a trade war between the US and China. Strong economic data from the US also suggests that the Fed might be comfortable putting interest rates up, despite the so-called trade wars. It is currently pushing the value of the dollar up, however there are questions over how much the dollar can continue rising.

Investment flows have, and will likely continue to have, the biggest influence on gold prices, and is the most difficult area to forecast. The start of the year was somewhat subdued, and with Money Managers having dramatically decreased their long positions since February.

Looking back over the last few years, gold seems to typically dip in price during the summer. Prices from the London Bullion Market Association (LMBA) show that in 2015 the gold price fell 7% in a month to $1,080 an ounce on July 30. The same was true in June 2016 when it fell 6% during the month and last year it fell nearly 5% to $1,207 an ounce in the month to mid-July 2018. In the last month the gold price has fallen 5% to $1,232.8 an ounce on 17th July.

The biggest upside risk to gold price is an escalation global geopolitical tensions, with the converse easing of such tensions having a negative impact, and with leveraged ETP’s linked to the price of gold available in both long and short directions, and traded daily on the LSE, sophisticated investors may well see such products as an ideal tool to express their view.

To view the range of Societe Generale Gold linked leveraged ETP’s, you can click here

Remember, as with most investments, the value can go down as well as up, and as a leveraged investment these products are designed for sophisticated investors, so if in doubt, seek advice.

Post by: Zak de Mariveles, Head of UK Exchange Traded Products

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