What’s causing the 2020 gold rush?
Gold isn’t just something we like to wear, it’s also a commodity that’s traded by investors. And it’s in big demand: the price of an ounce of gold recently topped $2,000, surpassing the previous high seen in the summer of 2011 following the financial crisis.
In 2020 alone, the price of gold is up over 30% at the time of writing – following a gain of nearly 18% in 2019. Those are significant returns.
But why? What is causing the rise in the price of gold? here are some factors that could be considered:
Global interest rates are extremely low. When banks and stock markets are providing poor returns, investors turn to gold as a ‘safe haven’. Global interest rates are currently so low – even negative in some countries – that returns are next to nothing in a bank, and yields on government bonds, a common low-risk investment product, are similarly poor.
It’s less volatile. Gold offers a degree of certainty in a very uncertain world. When markets (or politics) are up and down, people rush to physical assets like gold to reduce their exposure to the volatility. It has an enduring, dependable value, hence its reputation as a safe place to put your cash.
A weak dollar makes gold more valuable. Gold is traded and valued in US dollars, which means its price varies according to the strength of the currency. When the dollar is weak, you can get more gold for your money – and the dollar has been falling in recent times as the US struggle with the impact of coronavirus continues.
Inflation concerns inflate gold prices. Inflation is currently very low, but worries of rising inflation to come are widespread after all the money pumped into economies globally. There are clear trends when it comes to the relationship between gold and inflation, with gold returns on average around 3% higher when inflation goes above 3%, according to a long-term US study.
Supply and demand. Gold supply is limited: production levels haven’t increased significantly since 2016 because most ‘easily mined’ gold has now been dug, and miners must go ever deeper to reach new reserves. Meanwhile consumer demand continues to grow, from jewellery to GPS components; and exchange traded funds (that anyone can buy into and trade like shares) have opened up gold investment to the masses, increasing investor demand.
Should you buy gold?
Some experts are predicting further, steep rises in the price of gold in the next few years. But the reality is that right now, nobody can predict what’s going to happen next in the world, as this year continues to prove.
We simply don’t know when inflation or interest rates will rise, what will happen to the dollar, or whether the markets will remain volatile. So whether or not to invest depends on your opinion of these trends continuing.
One thing is for sure, that our fascination with this precious metal is here to stay.
5 facts about gold
Gold has long captivated us, but here are five facts you probably don’t know about it.
- Over 187,000 tonnes of gold have been mined since civilisation began – and unusually for a commodity, almost all of it remains in existence today.
- Fort Knox is the world’s largest store of gold, with almost 4,600 tonnes held there by the US Mint.
- The Bank of England’s reserves, by contrast, are only around 310 tonnes.
- About half of all gold mined today is made into jewellery. It’s also commonly used in technology and computing.
- The largest gold coin ever made was produced by the Perth Mint in Australia in 2012 – measuring 80cm across and weighing an incredible one tonne!
