European investors are in a tricky position, writes Alistair Hewitt, director at the World Gold Council.
Equity markets have had a strong start to 2019 - by the end of February, the Bloomberg European 500 index was up over 11%. And yet, there is a lingering doubt in many investors' minds; how sustainable is it amid political and economic uncertainty?
The global economy is slowing down and that has impacted Europe. German growth stalled at the end of last year as overseas demand - especially from China - dwindled.
Italy stumbled too, hamstrung by low productivity, high debt and fractious budgetary negotiations between Brussels and Rome. The outlook for 2019 is not much better.
February's European manufacturing Purchasing Managers Index slipped to 49.3, the first contraction since 2013.
For several years, investors have been living in a fog of political uncertainty, which has had an impact on currency markets. Sterling is down around 14% since the start of 2016.
Brexit clearly remains the focus of investor attention but, beyond that, investors are paying attention to the potential market implications of populist party gains in May's European parliamentary elections.
Europe's woes are set against an unsettled global backdrop. US-China trade tensions could hit European industrial demand, exacerbating the slowdown it is suffering.
US stockmarket volatility is higher and signs of vulnerability are emerging in its corporate debt market. While the US economy is unlikely to turn sour overnight, the probability of a downturn over the next 18 months has increased.
In the gold market, we are observing the knock-on effects of these wider fears. In 2018, central bank gold buying hit its highest level since 1967, with the likes of Poland and Hungary becoming the first European central banks to significantly increase their gold reserves in more than 25 years.
In a survey of 22 central banks YouGov conducted on our behalf last year, 76% cited gold's role as a safe haven asset as being extremely relevant to their investment. Some 35% of respondents cited political risk as an important motivation for their gold holdings.
Meanwhile, in Europe specifically, gold-backed funds now hold more gold than ever before - including at the height of the eurozone debt crisis. Europe was the only region in the world that saw assets in gold-backed ETFs grow in 2018.
Faced with the challenge of managing the risk in their portfolios amid deteriorating fundamentals and uncertainty, many European investors have increased their allocations to gold.
While the European equity market rally may even continue, investors are clearly looking to balance the risk of a market pullback.