POLITICAL uncertainty and growing demand in the developing world will underpin gold prices for the foreseeable future, according to ABC Bullion chief economist Jordan Eliseo.
“There’s always an element of that (political uncertainty) in the background but I think it’s definitely coming to the fore,” Mr Eliseo told Business News.
“That’s both due to the sort of problems we’re seeing in the Middle East, but also increasingly people are questioning what’s going on even within their own shores.”
Examples of that were the voter anger and dissatisfaction being tapped into by Donald Trump (and Bernie Sanders) in the US primaries, the Brexit push in the UK, and the fraying of the political centre more generally.
That political shift was partly driven by growing sovereign debts and the inability of many developed countries to get spending under control.
Tensions in the Middle East were also a contributory factor, Mr Eliseo said, with Western investors rediscovering gold as an investment asset as a result of all these factors.
Low interest rates and volatility in the price of other assets were additional contributors to gold coming increasingly on the radar of Western investors, he said.
A second factor that would support prices was demand driven in emerging markets for physical gold.
Buying in emerging markets was correlated to higher incomes, Mr Eliseo said, which led to increased spending on food, clothing and accessories.
“Gold jewellery demand has exploded in those countries,” he said.
Central banks were a further contributor to demand, buying an aggregate of 600 tonnes of gold in 2015.
That was one of the fastest accumulation rates in decades, Mr Eliseo said.
“That should help support the gold market,” he said.
Central banks in developed countries hold about 20 per cent of reserves in gold, while emerging market countries hold a much smaller portion.
That should increase over time, while negative interest rates on sovereign debt would additionally push investors towards gold.
Meanwhile, the good news keeps coming for gold producers.
Most are getting costs under control, with reduced pressure on wages and lower capital costs as the mining investment boom comes to a close.
The drop in the price of another key global commodity, oil, was a boon for miners.
Sydney-based ABC Bullion became just the second London Bullion Market Authority (LMBA) accredited supplier in Australia in December.
“Having at least two refineries that are LBMA accredited and capable of dealing with the large gold miners we have in this country is only a good thing for the industry,” Mr Eliseo said.
The other accredited refiner is state government-owned Gold Corporation, which runs the Perth Mint.
That business unveiled an improved half-yearly result in the six months to December 2015, with a pre-tax profit of $24.9 million.
That was after increased volumes and a sustained effort at cost rationalisation, according to chief executive Richard Hayes.
Both refiners have made a recent effort to target financial markets.
For Gold Corporation that included an online trading platform, with gold stored at the Perth Mint.
At ABC, the company was working on engagement with both self-managed superannuation funds and retail funds.