*By Christophe Barraud, Chief Economist & Strategist at Market Securities
As I already highlighted a few weeks ago, TrackInsight data show that investors kept piling into “Gold” ETFs with cumulative inflows hitting a new YTD high. The trend has recently strengthened with Global Economic Policy Uncertainty Index remaining close to record high and negative-yield debt still expanding at a strong pace.
As a safe heaven, gold has recently been boosted by the uncertainty unleashed by the U.S.-China dispute and Brexit, which have dampened demand globally. Despite Chinese Vice Premier Liu He agreed to a visit in Washington in early October, tensions between the two nations havent disappeared. Both sides raised tariffs on Sept. 1 in the latest round of retaliation while the U.S. plans to add more tariffs on Oct. 1 (the 70th anniversary of the founding of the Peoples Republic of China). Later, both nations are expected to increase duties again on Dec. 15 unless there is at least a truce or a partial deal.
Focusing on Brexit, press reported that in a 327-299 vote on Wednesday, UK MPs passed a bill to block a no-deal Brexit. The bill would require UK Prime Minister Johnson to ask the EU for a Brexit delay until Jan. 31 if no deal has been agreed to by October 19. In the meantime, Johnson’s motion for a October 15 snap election failed (as expected) as Labour leader, Jeremy Corbyn has conditioned his support for an election on the bill blocking a no-deal becoming law first. In this context, a FT article revealed that Corbyn is planning a no-confidence vote possibly as soon as Monday, assuming the anti no-deal Brexit bill becomes law by then, letting all options on the table
In the meantime, the arbitrage between holding gold (as a store of value) and cash has also slowly turned in favor of gold amid the expansion of negative-yielding debt worldwide. The global stock of negative-yielding debt exceeded $17 trillion in late August and is likely to remain close to historical high with central banks in advanced economies (Fed, ECB, SNB) forecasted to cut rates in the coming days opening the door to EM central banks.