Many investors and financial experts are predicting that prices could soar even further as people look for safe places to invest their cash. However, as countries and individuals across the world see a decline in income as a direct result of the coronavirus crisis, consumers in China and India are buying less gold, causing central banks to cut purchases as well. Without them, gold’s high-flying run may be short-lived.
How much is gold?
At the moment, gold costs around £1,369 ($1,700) an ounce.
Some predict a bull run as investors search for insurance against an economic downturn and the potential devaluation of assets and currencies.
Financial experts predict that this year may mirror 2011, whereby gold rose to record highs of £1,603 ($2,000) per ounce.
Bank of America Merrill Lynch has even said they predict prices could rise to £2,405 ($3,000) by the end of next month.
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The coronavirus crisis, however, could prove problematic in these predictions as history shows that gold prices are driven higher after a period of sustained rising demand.
For now, individual consumers are undoubtedly buying less than they did two months ago.
Chief cross-asset strategist at Morgan Stanley Andrew Sheets told Reuters: “You encounter a lot of conventional wisdom around gold, like that inflation drives it up, or a bad environment does.
“But gold is not so straightforward. Look at 2003-2012, gold basically went up in every possible scenario. Boom, bust, crisis, no crisis. Then for a few years it just went down every year.”
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Gold prices in the last 50 years
Gold has had two record bull runs in the last fifty years.
The first took place when governments relinquished control of gold prices and relaxed rules on private ownership, around 1970.
The move released a surge of backlogged demand, and along with political and economic convulsions and a rush of investment, the price of gold climbed from £28.05 ($30) to £641.11 ($800).
This run did peak, however, and was followed by twenty years of weakness as central banks sold thousands of tonnes of gold – resulting in prices dropping to £200 ($250) an ounce in 1999.
The tide quickly turned with the new century as the structure of the market changed. European central banks agreed to coordinate gold sales, which led to a stabilisation in prices.
In turn, China allowed more people to buy and own gold, which led to a soar in purchases.
Exchange traded funds (ETFs) were introduced as a means of storing gold on behalf of investors, which made it easier for people to own gold.
Between 2003 and 2011, the annual demand for gold rose from around 2,600 tonnes to more than 4,700 tonnes, according to the World Gold Council.
The run was short-lived though, as high prices punctured the demand side of things.
Prices stagnated until last year, which is when central banks started lowering interest rates.
This pulled down bond yields and make non-yielding gold much more attractive to consumers.
The 2008 financial crisis arrived right in the middle of gold’s last good run – fuelling it as opposed to kickstarting it.
Early in the financial crash, gold prices fell sharply as a broader decline in assets forced investors to raise as much as money as they could by selling what they could get their hands on.
The same thing happened recently as the global spread of the coronavirus pandemic brought on a market panic.
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