Why is the price of gold hitting record highs?
2020 is the year that the price of gold in US dollar terms set a new record of $2000 per ounce spot (August 2020). This is the highest recorded dollar spot price for gold in history.
Gold has surged by over 30% since the beginning of 2020, gold has never been higher, therefore, could this rally continue?
Uncertain times.
Due to the current situation regarding covid-19, governments across the globe are continuing to flood their economies with financial stimuli in the forms of stimulus cheques, furlough payments, grants, bailouts and more. All this while interest rates remain at or close to 0% in many countries around the world.
The scale of all the economic assistance to avoid the U.S. and World economy from slipping into recession has been huge to say the least.
There is still increasing uncertainty regarding the fact there may be a second wave of the virus as well as increasing tensions between the U.S. and China.
As the U.S. dollar is the World’s reserve currency, it seems that the U.S. dollar is losing its appeal among investors. Many investors are poised, checking on any news on more monetary stimulus from the U.S. federal reserve, all adding to the uncertain future of the U.S. dollar, and that makes many investors want to run to the safety of gold.
The injection of large quantities of cash, especially in U.S. dollars, is essentially making those dollars less valuable.
The same can be said in the UK, with the UK national debt now over 2 Trillion (Source www.nationaldebtclock.co.uk).
Although many citizens have benefitted from these stimulus packages in the short term, the long term consequences are potentially more harmful financially to the average person.
Precious metals.
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Precious metals are benefiting from this current financial environment.
Gold has always been hailed as the ultimate safe-haven investment, acting as an insurance policy as such, with no counterparty risk.
Often, investors look to gold as a way to limit any potential losses from any other investments such as stocks. Gold is a way of diversifying an investment portfolio, therefore, minimising risk.
Gold is benefiting from the fact that we are currently living in arguably increasingly troubled times. The more uncertainty, the more investors will turn to safe assets such as gold.
Not only can you physically see and touch gold, gold has been used as money and a store of value for thousands of years.
Gold will always retain its value and the price of gold will never go to zero.
Gold is also benefiting from the fact that the currencies around the globe are being devalued and gold is retaining its value. At the moment gold is simply doing the job it has always done through history, working as a reliable store of value.
There is no way of knowing if the value of gold will continue its path higher.
However, all you need to do is look at history and see that gold has always been used as a safe haven for protecting wealth during economic turmoil.
Gold is likely to continue to be true to its function as a safe-haven investment.
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