Gold prices gained 16% in the first quarter and had their best quarterly performance since 1986. Gold made gains due to continuing ultra loose monetary policies, diminished U.S. rate-increase expectations, worries about global economic growth, both U.S. and global geopolitical concerns and turmoil in markets. Most of the gains came in the first six weeks of the year when market turmoil was at its worst and sharp falls were seen in stock markets. For the quarter, the S&P recovered from losses and eked out a 0.9% gain, the DJIA was 1.7 percent higher while the Nasdaq 100 fell 2.7% on concerns of a new tech bubble. European stocks had a torrid quarter with the EuroStoxx 50 shedding 10.3 percent and the DAX down 9%. The Nikkei crashed 13.2% in the quarter as the Japanese economy showed little signs of recovery and indeed looks on the verge of a depression. The dollar logged its worst quarterly performance since 1990 as the Federal Reserve slowed the expected pace of interest rate hikes, citing worries about the potential domestic impact of very weak global growth. Sterling was the weakest major currency in the world and the British pound weakened 2.5% against the dollar and 20% against gold over the course of the quarter as worries about a possible U.K. exit from the European Union led to traders selling sterling aggressively. All currencies fell in gold terms even ones that were stronger than the dollar. The yen was the strongest major currency in the world despite the struggling Japanese economy. While it rose 7.1% against the dollar, it was 9% lower versus gold. Sterling fell 20% and the euro fell 11% against gold. The Canadian dollar fell 10%, the Aussie dollar fell 9% and the Swiss franc fell 12% against gold. Gold started the year at $1,062, €974 and £716 per ounce and finished the quarter at $1,233, €1,080.69 and £860.20 per ounce. Geopolitical risk intensified with the risk of terrorism and war ever present and gold continued to act as an important hedge against geopolitical risk and indeed currency devaluations. Further correction and consolidation remains a possibility given the strong gains in the quarter. However, we expect currencies to continue to fall in value versus gold in 2016 and competitive currency devaluations and currency wars are set to return. Even after recent gains, gold remains 35% below the nominal high in August 2011 and silver some 70% below its nominal high in April 2011. In inflation adjusted or real terms, prices remain even more undervalued. This is especially the case given the negative interest rate monetary backdrop and other significant economic and geopolitical risks. Gold reasserted its role as a hedging instrument and an important safe haven asset in the quarter. Exactly when investors needed gold to perform, as stocks and currencies lost value in the quarter, gold outperformed. Once again, it enhanced returns and reduced volatility for those with diversified portfolios.
