Investors maintain interest in gold

A precipitous fall in the price of gold to a four-year low has done little to damage sentiment to the asset class as investors have gone bargain hunting.

The precious metal has been caught up in the general decline in commodity prices in recent months, dropping below $1,200 (£766) per troy ounce, after having traded at values closer to $1,300 for most of this year.

But the drop in the price of gold has seemingly left investors undeterred and data shows that both sentiment to the asset class is holding up well and inflows have started to pick up into gold exchange-traded funds (ETF).

A recent survey from Lloyds Bank Private Banking has found that gold had the second-highest positive sentiment among investors, only just behind property.

The November version of the monthly survey revealed that, while sentiment to the precious metal had dropped slightly in the past month, it had done so by far less than the sentiment towards other asset classes such as equities and bonds, propelling gold into the second-most-favoured asset class.

Ashish Misra, head of investment policy at Lloyds Bank Private Banking, said: “Gold continues to be an interesting asset class to watch, as the rise in investor net sentiment score towards it is viewed in the context of a period of elevated volatility.”

The relative rise in its popularity came in spite of the gold price falling by 7 per cent to $1,143 per troy ounce in the week to November 4.

Mr Misra said the sharp sell-off across markets in October had led investors to look once again at gold as a “flight-to-safety” and that the precious metal could return to popularity if investors “look towards safe-haven options”.

Nine out of the 10 asset classes used in the survey saw a drop in investor sentiment in the past month as volatility spiked.

There was a dramatic drop in sentiment towards equity markets, particularly in the eurozone, which saw a 20 percentage point drop in its net sentiment score to -45 per cent, and investors seem to have turned to gold instead.

At the start of November, ETF Securities revealed the level of investor money flowing into gold exchange-traded products (ETPs) hit a seven-week high as investors fled to the precious metal following the market sell-off.

The increased buying of gold from investors came during the drop in its price and also coincided with a rise in inflows into ETFs tracking the oil price, as that also declined.

Simona Gambarini, associate director of research at ETF Securities, said the drop in the gold price had been sparked by the US Federal Reserve ending its programme of quantitative easing, even though the event had been flagged to the market for months.

But Ms Gambarini said: “Unsurprisingly, ETP investors considered the correction as an opportunity to increase their gold holdings, with inflows into gold ETPs reaching a seven-week high.

“With many commodities trading so close to their marginal cost of production, we believe that prices cannot fall much lower without triggering a supply response.”