Futures & Commodities

Confusion and turmoil helps gold to shine

Gold is bottoming out: Strategist
Gold is bottoming out: Pro
Gold is a portfolio hedge: Head of investments
Gold is a portfolio hedge: Head of investments

Concerns over the global economy have added an extra shine to safe-haven assets such as gold, according to the chief executive of a top mining firm, who told CNBC that "solid" demand and future economic stress could lead to more price gains for the commodity.

"We're in a very confused state as far as understanding the global economy with very mixed messages coming from different sectors around the world," said RandGold Resources CEO Mark Bristow.

"It's an interesting time and that's always good for gold when people are unsure about the future."

RandGold's shares soared to the top of the FTSE 100 on Monday after beating market expectations in its full-year results. Investors cheered a rise in dividend payments and looked towards an increase in production for this year despite indications that profits had sunk in 2015.

Bristow noted that his company is well-positioned to deal with lower gold prices, even at a potential trough of $800 an ounce. He highlighted continued "tough times in the industry" but predicted a brighter patch with renewed strength in the gold price.

"The industry is under a lot of pressure because they set their business at prices much higher than the current spot price and so while, you know, the better gold prices of the last couple of weeks helps, it's still not going to help until the industry recuts its business," he said.

This could be the ultimate bull trap
The surprising new case for gold
A trader on the floor of the New York Stock Exchange, Jan. 7, 2015.
Correction protection: Where to hide right now

He added that "additional stress" in Asian economies would be good for the gold price as consumers there often using bullion as a hedge for their investments. He also called on fellow mining firms to "exercise a little bit of discipline" on an oversupplied market. Meanwhile on Monday, Anglo American's chief executive Mark Cutifani said that the industry had itself to blame for the oversupply, according to Reuters, but added that the industry shouldn't be relying on a reversal of the commodities price slump anytime soon.

Spot gold reversed some gains on Monday morning but still traded near a three-month high. Last week, it turned in its third consecutive positive week for the first time since the four-week winning streak ending April 1 last year. In the U.S. on Friday, the GDX gold miners exchange-traded fund closed up 5.57 percent and finished its best week since the week ending December 12, 2008.

A price of $1,166.94 at 8.30 a.m. London time meant that the commodity has rallied nearly 10 percent so far this year. This appreciation has come during turmoil for riskier assets like stocks and amid some gloomy warnings from bearish economists.

Bloomberg | Bloomberg | Getty Images

Some analysts, however, note that the rally is merely a "short-covering" with many traders having had large bets that the price would edge lower. However, there is renewed confidence on bullion in certain parts of the investment community.

"Due to prevailing risk aversion in financial markets and mounting global growth risks, a bearish outlook on gold is not warranted anymore," Carsten Menke, a commodities research analyst at Julius Baer, said in a note Monday.

"We have turned neutral and believe that investors should use gold as insurance in their portfolios."

Julius Baer highlighted that gold holdings are up more than 110 tons since the start of the year. It stated that there have been 22 consecutive days of inflows, the longest streak of inflows in more than five and a-half years.

Michael Widmer, metals strategist at BofA Merrill Lynch Global Research, told CNBC Monday that gold would likely reach $1,250 an ounce by the end of 2016.