What is gold’s rally signaling about the global economy? Barclays weighs in.

Investing.com - Gold’s recent torrid run higher could be interpreted as a sign of growing investor distrust in the fiscal positions of countries around the world, as well as loss of appeal among other traditional safe-haven assets, according to analysts at Barclays.

Over the past one year period, gold has climbed by almost 50%, and by over 25% in the last six months.

Underpinning the increase have been a range of factors. These have included heavy central bank demand for bullion in the wake of the freezing of Russian assets after the outbreak of fighting in Ukraine in 2022, relatively modest growth in the amount of new gold being mined, and a spike in retail investment activity that has fueled more inflows into gold-linked exchange traded funds.

In a note, the Barclays researchers including Ajay Rajadhyaksha suggested that gold’s surge, which brought the yellow metal above the $4,000 an ounce level for the first time this week, is somewhat unusual because such gains historically occur during times when stock markets are faltering, central banks are rapidly easing borrowing costs, and economies are teetering.

"The impressive part about the current gold rally is that it is happening despite healthy financial markets, a fairly high fed funds rate and no signs of wide-spread economic distress," they wrote.

Instead, investors may be pouring money into gold in response the "worsening" fiscal profiles in major economies around the world, they argued. As an example, they flagged that the United States, United Kingdom, France, and Japan all have very large debt loads, along with rapidly expanding deficits and looming demographic challenges.

"But most importantly, there is virtually no political appetite for fiscal consolidation," the analysts wrote.

Meanwhile, markets are not finding alternative safe havens to gold, they said, noting weakness in the Japanese yen and an expensive Swiss franc.

Although a recent pick-up in speculative positioning in gold has raised worries around the sustainability of the precious metal’s rally, policymakers should focus on the "message" from bullion’s ascent, the analysts added.

"Financial markets are awash in sovereign debt, with the promise of trillions more to come. Fiat currencies have taken a beating after the inflation of the past few years. And gold is signaling increasing investor uneasiness about this state of affairs," they said.