The leap to record highs in the price of gold bullion has been fuelled by the fear factor stemming from unrest in parts of the Mena region.
But once calm is restored, the precious metal's battle with the world's central banks begins.
In the six weeks since tanks rolled into the centre of Cairo to quell protests that deposed Hosni Mubarak, the Egyptian president, gold has risen by almost 10 per cent to hit a record $1,436.40 an ounce on Wednesday as investors weigh up the likelihood of an oil price shock to the global economy.
Prior to the civil unrest in parts of the Mena region that propelled oil above $110 a barrel to 2-year peaks, there was a strong argument bubbling earlier this year that the global recovery was gaining traction and inflation was accelerating to warrant the developed world's central banks raising interest rates.
Now, investors are a lot less certain about the outcome of the protests, which have eclipsed the prospect of gold-denting rate rises.
"Essentially, moving into gold, or silver at this moment is more about a play that events in the Middle East are going to deteriorate rather than get better," said Nick Moore, an RBS global commodities strategist.
"Prior to this event, gold was already richly priced … but because every day seems to bring fresh horrors in Libya, one can't rule out that there won't be some maniacal event that drives gold higher," he said.
Investors often buy gold to protect their portfolios from the ravages of inflation. But when price pressures build enough to trigger a response from a central bank, gold can quickly switch from being a blessing to a non-yield bearing curse.
There is no doubt that record food prices and soaring energy costs are whittling away consumer purchasing power and investor returns, driving real interest rates - a benchmark rate minus inflation - deeper into negative territory.
The lower the rate of interest, the greater the support to gold, which bears no yield of its own and therefore gets sidelined for stocks, high-yielding currencies and bonds when rates rise and returns improve.
BlackRock, a major investor in gold and gold equities, said last month the key threat to the bullion market was "an increase in real interest rates. When these begin to rise, the opportunity cost of holding gold will encourage investors to sell the metal".
Real interest rates in the Group of Seven economies are now all negative except in Japan, compared with five nations this time last year, as inflation has picked up.
In the rest of the Group of 20 leading and emerging economies, which include Brazil, China, India and Russia, real interest rates are negative in six of the 13 nations, compared with five this time last year.
So the heat is on the central banks not to lag in the fight against inflation, particularly in the emerging world, home to the biggest gold buyers India and China - which has already raised rates three times since October.
"There is lots of capital in China, they've got the same fears that any other investor would have and with inflation picking up, by holding [yuan] you get negative real returns," said Daniel Brebner, a Deutsche Bank analyst.
"That doesn't make much sense and you have to look to hedge against that risk," he said. "This is something we've been seeing and it will continue."
Meanwhile, the gold/oil ratio - the number of barrels of oil needed to buy one ounce of gold - has fallen to its lowest since late 2008, the nadir of the global financial crisis, indicating oil's outperformance relative to that of gold.
But the effect of the turmoil in parts of the Mena region on both assets has made this particular market gauge less representative of investor risk appetite or confidence in global growth.
"Both are inflation indicators but they can also be safe-havens sometimes, so there is some credibility behind this ratio, but don't read too much into it," said Eugen Weinberg, a Commerzbank analyst. "On the consumption side, those two commodities are not competing with each other." Market-based inflation expectations have also picked up sharply from where they were six months ago.
The US Federal Reserve and the European Central Bank are widely expected to withdraw emergency cash measures put in place during the financial crisis, while many emerging economies such as China are tightening policy to combat inflation and "hot-money" inflows from yield-starved investors.
For now, even if gold loses its "peace dividend" from tensions subsiding in the Mena region, it is still a long way off buckling under the weight of the central banks collectively allowing for higher inflation and stronger growth.
After all, aside from gold, no other major asset class has rallied for 10 years in a row, defying global boom and bust, inflation, deflation, oversupply or shrinking consumer demand.
* Reuters
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
UAE currency: the story behind the money in your pockets
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
Cryopreservation: A timeline
- Keyhole surgery under general anaesthetic
- Ovarian tissue surgically removed
- Tissue processed in a high-tech facility
- Tissue re-implanted at a time of the patient’s choosing
- Full hormone production regained within 4-6 months
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
The biogs
Name: Zinah Madi
Occupation: Co-founder of Dots and links
Nationality: Syrian
Family: Married, Mother of Tala, 18, Sharif, 14, Kareem, 2
Favourite Quote: “There is only one way to succeed in anything, and that is to give it everything.”
Name: Razan Nabulsi
Occupation: Co-founder of Dots and Links
Nationality: Jordanian
Family: Married, Mother of Yahya, 3.5
Favourite Quote: A Chinese proverb that says: “Be not afraid of moving slowly, be afraid only of standing still.”
German intelligence warnings
- 2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
- 2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
- 2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250
Source: Federal Office for the Protection of the Constitution
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Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
Feeding the thousands for iftar
Six industrial scale vats of 500litres each are used to cook the kanji or broth
Each vat contains kanji or porridge to feed 1,000 people
The rice porridge is poured into a 500ml plastic box
350 plastic tubs are placed in one container trolley
Each aluminium container trolley weighing 300kg is unloaded by a small crane fitted on a truck