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There is nothing like geopolitical uncertainty to send investors scuttling for shelter. This is likely to be one reason why gold, which had a torrid 2013, looks to be reclaiming its attraction for investors as the Ukraine crisis continues.

The day after the disputed referendum in favour of breaking away from Ukraine, the New York Mercantile Exchange reported a session trade in gold futures of $1,392.20, the highest since 9 September 2013. It since fell to $1,346.40.

The indicators are that investors are returning to the yellow metal – a far cry from 2013, when it was following a downward price trend from its $1,910 high in August 2011 to $1,202 in December.

Platinum and silver, which had been up at £1,879 and $43.57 in August 2011, likewise fell to $1,371.10 and $19.37 respectively by December 31 2013.

This trend was the cumulative result of mass selling. Deborah Fuhr, partner for independent consultancy ETFGI, explains this as “uncertainty over the US Federal Reserve’s tapering programme, while many investment banking strategists had forecast continuing weakness in the gold price”.

Exchange traded funds played a leading role in the sell-off. Some 29m ounces, which ETFGI has priced at $40,091m, were sold by ETF investors, especially in April and June 2013, although Nicholas Brooks, head of research at ETF Securities, calls this “extreme” and unlikely to be repeated.

Money was diverted into equities as markets rallied. Markus Bachmann, co-founder of South-Africa based asset manager Craton Capital, says: “Equity markets were roaring, the Fed had just announced tapering, and people who didn’t have a philosophy of keeping gold in their portfolios as a hedge, as a diversifier, started selling.”

Marcus Grubb, managing director of investment strategy for the World Gold Council, says that the mass sell-off created huge supply, pushing prices down. “They are still 25 per cent down on last year and analysts were too bearish,” he says.

After the sell-off, bars were shipped to Asia, particularly Beijing, as China overtook India as the biggest consumer of gold.

The World Gold Council recorded a 38 per cent rise in China’s bar intake last year, while demand for jewellery was up 29 per cent.

Thailand’s desire for bar and coin reached 79 per cent and even the developed markets such as UK and US reported an upsurge in jewellery demand, at 10 per cent and 13 per cent respectively.

Overall, purchases of gold in 2013 reached $170.4bn, with jewellery at its highest since the onset of the financial crisis in 2008.

Since the end of 2013, the gold price is up 14 per cent and, given the Ukrainian situation, this positive price momentum remains in place.

Mr Grubb says: “Gold is reasserting its historic status as a hedge asset.”

Mr Brooks adds: “Investors are also allocating to silver as it has traditionally outperformed gold when both are rising.”

Since December, silver has climbed 10 per cent and platinum and palladium have risen 8 per cent, partly because labour strikes last year in South Africa pushed prices up, says Nick Moore, commodity strategist for fund manager BlackRock.

What if market risks diminish or central banks face inflationary headwinds?

Mr Grubb says he cannot see inflation reaching such danger levels. The Federal Reserve could also issue another £10bn tapering programme.

Michael Hartnett, chief global equity strategist for Bank of America Merrill Lynch, also warns: “If the Fed can raise rates, gold will be unlikely to glitter.”

Macro events should not negate long-term investment decisions, says Roland Khounlivong, head of dealing at British online trader GoldMoney.

“The fact that gold and silver prices are discounted suggests it is opportune to buy and hold. Geopolitical and economic risks continue and investors are looking for protection.

“Gold’s use as an investment predates stock markets. It has been, and can continue to be, a good hedge.”

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