Why Gold Prices Have Been Hitting Record Highs
Gold prices continue to rally this month as the coronavirus pandemic of 2020 continues. The precious metal closed at a little above $2,000 (£1523.05) on August 5th — a record high in the history of gold. Its earlier record peak was in 2011, a few years into the global financial crisis, when investors pushed the price of gold past the $1,900 (£1446.90) threshold.
Analysts have noted that the price of gold in recent months has been on a steady upward trend. However, during the initial stages of the pandemic, market prices rose and fell erratically. A report on gold prices by FXCM in March of this year stated that the bullion, which includes gold, performed poorly due to mass capitulation. Investors liquidated their assets out of panic as outbreaks occurred left and right. This caused the price of gold to fluctuate.
Almost two quarters into the pandemic, however, and the price of the metal continues to increase. That said, SYZ Private Banking’s Luc Filip recently pointed out that investors need to understand each asset’s characteristics in order to position themselves for recovery. And so with that in mind, here are the main explanations behind the escalation of gold prices:
Gold is a safe haven
Compared to other financial markets and instruments, gold is considered a safe haven in times of economic turmoil. This is due to the fundamental value of the metal, independent of other factors like economic stability. Gold is still gold — and valuable — on its own.
When a financial crisis happens, the value of assets such as stock, real estate, and currency drops. Investors tend to flock to gold given that it has historically retained most of its value during economic instability. The recession that today’s pandemic has caused is no different. And as cases continue to rise globally with no available cure or vaccine, the prevailing investment speculation is that gold will be the least risky investment option for the foreseeable future.
The dollar is weakening
The price of gold generally has an inverse relationship with the value of the dollar. As of this writing, NBC News reports that there are over 4.8 million COVID-19 cases in the US, and this number continues to rise across the country.
The inefficient containment of the coronavirus is one of the reasons the US has entered a recession. Though it initially rose, the dollar has dipped in value over the last few months. A weaker dollar means more gold can be purchased by investors pushing the demand — and its price — higher.
Investor interest is rising
Given those reasons, investor sentiment towards the metal has been positive. It is also receiving wide media coverage due to the record highs the price of gold has been hitting and surpassing. More analyses and reports on gold naturally increase interest among investors.
As the pandemic continues, Goldman Sachs predicts that gold prices will rally and pass the $2,300 (£1751.51) mark per troy ounce. This is due to the ongoing economic and political instability in the US, as well as the global public health crisis that hit the country particularly hard. Though the situation is alarming, these are considered favourable conditions for gold and thus, might make it a worthwhile investment.
