It’s a good time to be a goldbug. The precious metal hit a new high on Monday, topping $5,000 per troy ounce, which is slightly heavier than the ounce most of us are familiar with day-to-day.
It’s heady days indeed for gold, which is up close to 150 per cent in the past year. Just this month the price has climbed by 17 per cent.
The surge in prices speaks as much to the times we live in as anything else. As a traditional safe haven for investors, it is perhaps no surprise that gold has increased in value so much in recent months at a time of such international upheaval. Silver, too, is up sharply in recent weeks.
The theory that gold holds its value at a time of inflation or weakening currency has been turbocharged over the past year by the so-called “debasement trade”, which has found favour around the likes of Wall Street and the City of London. If governments don’t reduce their debt or control inflation they will “debase” their currencies.
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Given US president Donald Trump’s moves against the Federal Reserve in particular, it’s not surprising that view has taken hold. US government bonds – also a traditional safe haven for investors – have started to drop too in times of market stress. That indicates less confidence in treasuries, and in the United States generally. That investor money has to go somewhere, and much of it is going into gold.
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Similarly, central banks the world over have become net buyers of gold in recent years having been net sellers for decades. Just last week, the Polish central bank said it planned to buy another 150 tonnes of gold, taking its total reserves to 700 tonnes. For context, the European Central Bank holds about 500 tonnes.
China, too, has been steadily increasing its gold reserves. Inevitably, when big buyers such as central banks are in the market, the price goes up.
It seems clear that momentum, for now, is behind gold prices continuing to rise. Yet history is replete with the price of a particular security rising right until the moment it stops, even if facts on the ground appear unchanged.
Either way, it seems clear that gold jewellery won’t be getting cheaper any time soon.
