Gold: A Unique Financial Asset, Not A Commodity
By Joe Foster, Portfolio Manager and Strategist
The gold market is unique for a variety of reasons. Gold has been a store of wealth throughout human history. It has functioned as a currency and remains an important component of central bank reserves. It acts as a hedge against systemic financial risks. For these reasons, we don’t see gold as a commodity, but as a financial asset.
As a financial asset, the price is driven by currency and interest rate movements, government policies and threats to the financial system. The price is determined in the financial markets centered in London, New York and to a lesser degree, Shanghai/Tokyo where the vast majority of trading volume takes place. A much smaller volume of trading occurs in the physical markets for bars, coins, jewelry, recycled scrap and mined gold. While the physical markets are important, they are secondary to financial markets as a price driver.
Source: MV Index Solutions GmbH. Data as of 30 June 2020.
About the Author:
Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Financial Times, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.