The price of gold is set to surge to record highs this year analysts have said as investors flock to 'safer' assets amid the coronavirus pandemic.The
The price of gold is set to surge to record highs this year analysts have said as investors flock to ‘safer’ assets amid the coronavirus pandemic.
The US dollar gold price reached a nine-year high today and is currently hovering at around the $1,856 mark. The all-time record is $1,920.
A new record high for gold against the US dollar is expected ‘in the coming weeks’, helping to complete the set with gold prices already at record highs against all other G8 currencies, Michael Hewson, chief analyst at CMC Markets UK, said.
Expectations: The price of gold could surge above the $2,000, or £1,593, mark for the first time ever this year
Two decades: A chart from BullionVault showing the price of gold in the last 20 years
With savings rates at rock bottom, further mass job cuts on the horizon and uncertainty permeating the economic outlook, it is no wonder that a growing number of investors are looking to gold to get them through the financial turbulence triggered by the pandemic.
In March, the price of gold started falling as the magnitude of the pandemic kicked in and investors turned to the ultimate safe haven of cash. But, since mid-March, the price of the yellow metal against the US dollar has surged over 20 per cent.
David Coombs, head of multi-assets at investment manager Rathbones, said that with interest rates going nowhere any time soon, he remained a ‘buyer of gold at this level’.
There are mounting fears we could see a second spike in Covid-19 cases in the world’s leading economies.
With this in mind, gold prices look set to continue to rise over the coming months amid strong seasonal demand and continued uncertainty over the outlook for the global economy.
Edward Morse, global head of commodity research at Citi, said he thinks gold prices are likely to hit unprecedented levels in the next six to nine months. Morse thinks there is a 30 per cent chance that the $2,000 gold price mark could be reached in just three months time.
Low interest rates, mass money printing by central banks, poor returns on traditional markets and higher demand all look set to push gold prices higher, Morse added.
Meanwhile, Jeffery Halley, an analyst at O&A, said: ‘Momentum remains secure with gold, likely pent up after narrow range-trading for much of July.
‘Today’s high at $1,866.00 an ounce form initial resistance. The all-time high at $1,920.00 is now within reach though, and a test seems likely assuming the global recovery remains uninterrupted across financial markets.
‘Gold would need to record a daily close below $1,819.00 an ounce to call into doubt the bullish thesis.’
Speaking to This is Money, Adrian Ash, a director of research at BullionVault, said the company had seen gold trading volumes double in the last 24 hours from the prior 30-day average.
‘A buy and hold strategy makes sense’
Speaking to This is Money, Giles Coghlan, chief currency analyst at HYCM, said: ‘Gold is a safe haven asset – investors rally to gold to protect their portfolio against any sudden market movements that could incur sharp loses given the precious metal’s ability to hold its price during turbulent times.
‘As such, it has had an impressive run over the past two years, and this looks likely to continue.
‘The current surge in gold prices comes at an interesting time; governments are trying to bring about a post-pandemic recovery, but cases continue to rise and concerns over the long-term economic downturn brought about by COVID-19 clearly has investors worried.
‘Private banks have been encouraging their high net-worth clients to allocate gold into their portfolio, which infers that not everyone is confident we have entered the “recovery” phase of this crisis.
‘In the short-term, I anticipate demand for gold and other precious metals to rise in order to hedge against market uncertainty. As such, I expect the price of gold to surpass $2,000 USD per ounce by the end of the year. Of course, this will be made clearer over the coming months as countries around the world transition out of lockdown.
‘There is always the practical question of when to buy gold. Afterall, how can you benefit from an asset that has already gained 18% in market value since the beginning of the year? The consensus is that the gold price will rise, which is why a buy and hold strategy makes sense.’
Gold demand on BullionVault has jumped 251.7 per cent so far this year, while total customer holdings spanning London, New York, Singapore, Toronto or Zurich, have swelled to 43.5tonnes, worth around £2.1billion.
Ash told This is Money: ‘We’d much rather this surge in business wasn’t coming amid such dreadful circumstances, but with interest rates collapsing alongside the economic outlook, record numbers of people are choosing precious metals as they seek some stability for their savings and investments.’
The price of gold has been rising while the value of the US dollar has taken a hit in recent months.
Yellow metal: The price of gold over the last 20 years in a chart from HYCM
Mihir Kapadia, chief executive of Sun Global Investments, said: ‘Since the outbreak of the pandemic across the world, the dollar has seen its value decline 5.1%, with July seeing losses of 2.3% so far in what has spooked investors to turn to other safe havens such as gold and silver in recent times.’
On the topic of silver prices, Edward Moya, a senior analyst at O&A, said: ‘Silver has also been on fire and continues to play catch up to gold.
‘The reopening trade is triggering strong industrial demand for silver and now that the $20 level has been cleared, bullish momentum might not see much resistance until its closer to the $22.50 level.’
CMC Market’s Hewson said: ‘The slow recovery in gold prices since the lows of 2015 has seen the yellow metal outpace the gains seen in the silver price.
‘For the first part of this century gold and silver prices did have a tendency to track each other quite closely, however in the last decade this relationship has decoupled somewhat.’
How do you buy gold?
Savers have a number of ways of buying gold as an investment, writes Simon Lambert.
Physical gold is the main way to tap direct into actual gold, by buying bullion or coins. This can either be done through a traditional dealer or through an online service such as GoldMadeSimple, or BullionVault. You can read more about how to do this on the World Gold Council’s website.
Exchange Traded Commodities are also a direct route into gold. ETCs, like Exchange Traded Funds, track a particular sector, or in this case commodity.
They are passive investments and should merely mirror gold’s moves, although some will offer leveraged returns or the opportunity to short the price. Make sure you understand the difference between ETCs that are physical (actually buying gold) and synthetic (set up to mimic its price). Read this guide to ETFs.
Funds enable investors to buy into a basket of shares of gold miners, producers and associated companies. However, the performance of individual firms does not always echo gold’s rises and falls, and in fact, gold mining shares can fare worse than the gold price – especially smaller companies.