Companies are increasingly buying gold amid unpredictable global market conditions to shield themselves from potential economic turmoil, inflation, rising interest rates and war.
The COVID-19 pandemic and other black swan events, such as Russia’s invasion of Ukraine and the conflict between Israel and Hamas, are pushing businesses to be more mindful of ways of protecting themselves in times of crisis, according to Matthew Keen, managing director of Evidens Consulting, a UAE-based specialist precious metal consultancy working with banks, brokers, corporations and end consumers.
Speaking at this year’s ACT Middle East Treasury Summit, Keen said: “Gold is very topical, especially in this region. It’s the ultimate portfolio diversifier. From a treasury perspective, a surprising number of corporates do hold gold, and more and more are now looking at bringing it in to hold. Gold has always been a good product to have in times of crisis.”
Keen also noted the increasing importance of treasury departments in preparing companies for market turbulence, which could affect a company’s revenue, stressing that while not all events are predictable, the more companies do to prepare, the better their chances are of protecting their income.
“Scenario planning has always been really important and the treasury function has become much more critical over the last decade, as the markets have experienced a lot more random events,” he said.
A surprising number of corporates do hold gold ...it has always been a good product to have in times of crisis
However, Keen warned any business thinking of hedging to be cautious, especially in volatile times. “Every market risk is hedge-able but that doesn’t mean you should hedge it. We are in times of high inflation and high interest rates – everything is more expensive today, I would be inclined to hedge carefully,” he explained.
“Buying options is super expensive, so you’ve got to look at where the liquidity exists. As an institution, you should use your good track record to expect the unexpected and give yourself some sort of breakage clause, because things change, this is part and parcel of running a treasury.”
At the same event Simon Ballard, chief economist of First Abu Dhabi Bank, noted that despite the risks of military conflict in Israel and Gaza and the ongoing war in Ukraine, Middle Eastern economies are growing, “because cash continues to flow in, and we haven’t had the impediment of tighter financial conditions that we see in the US and Europe”.
The next ACT Middle East Treasury Summit will be held in Dubai in September 2024. Details will be published on the ACT events webpage: treasurers.org/events
Nick Watkins is a freelance business journalist based in Dubai