Gold Hits 8-Year High in US Dollars
On Wednesday, gold crept up to a high of $1,779.40 per troy ounce, which is the highest US dollar price for the precious metal since October 2012. Miniscule yields on safe-haven bonds and expectations of inflation in the future are driving investors to park their wealth in gold, which has a strong reputation as a safe-haven asset in times of economic downturn.
Investors Dump Bonds, Buy Gold
Looking at the bond market, it is easy to see why gold has become so attractive for conventional investors. Real yields are almost certainly negative, meaning that holders of these bonds will effectively lose money over time. This is because the rate of inflation is greater than bond yields. Some countries even sold bonds with a negative interest rate, such as last month when the United Kingdom sold a three-year gilt with a nominal yield of –0.003%. If so-called safe haven bonds won’t offer a proper return, then it is not hard to see why the gold is strengthening against the main fiat currencies of the world.
Central bank actions have also concerned investors and economic analysts. Most central banks in major western economies have undertaken massive programmes of asset purchasing (quantitative easing, or money creation), which has raised fears over future inflation. Fragility is also evident in global stock markets, with reports of coronavirus spikes triggering sell-offs.
Gold has dipped slightly from Wednesday's high of $1,779.40, and is now currently trading at $1,766.78 per troy ounce (1.45pm, 29/6/20). The precious metal is also hovering close to its all-time high denominated in pounds sterling, being priced at £1437.55 per ounce. Initial optimism over the reopening of businesses seems to have been dampened by new coronavirus flare-ups and hardship caused by worldwide shutdowns, leading to further uncertainty in the near future. Gold could end up strengthening further in the months ahead as a result.
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