Gold Outlook and Price Review 2020
Gold has had a successful 2019 and further cemented its reputation as a safe haven asset, recording a positive price change of 11.61% in Pounds Sterling. This comfortably surpasses annual returns offered by traditional bank accounts (2% AER if you’re lucky), beats inflation levels (1.84% or 2.59%, depending on what measure is used, CPI or RPI) and was even close to matching the change in the FTSE 100 index (up 12.34%), which is seen as being more volatile. We take a look on how gold has fared over the last year and examine what could affect the price level of the precious metal in 2020.
Gold started 2019 at around £1025 and ended the year floating around £1144. In US dollars, gold increased from $1286 to $1517, which is a rise of 17.96% over the last 12 months. Indeed, every major fiat currency weakened against gold.
Whilst it would be impossible to pin exact causes as to why gold has strengthened against fiat currencies, an examination of the actions of global financial institutions could explain how price levels of gold are influenced. Central banks such as the European Central Bank and the United States Federal Reserve have restarted “monetary easing” policies in 2019 amid liquidity fears in American banks and sluggish economic growth in the eurozone. Debt levels, both sovereign and corporate, have hit astronomical heights. Consistently low interest rates combined with inflation has led to negative real interest rates, meaning fiat money loses value over time*. Bond yields remain pitifully small, in particular falling over the summer. Multinational organisations like the IMF and the BIS are constantly warning of a dire economic outlook, which has prompted countries such as Russia, China and Turkey to escalate their acquisition of gold as a security against economic turmoil.
It is clear policymakers in the West’s financial institutions have cornered themselves in response to the great economic crisis of 2008/09, so is it any wonder gold, and other precious metals for that matter, have fared well?
*Approximated by a derivation of the Fisher Equation: real interest rate ≈ nominal interest rate minus inflation, r ≈ i - π. Interest rates can be defined as the price of money.
New Year, Same Dangers
What can we expect to happen to the price of gold in 2020? Unfortunately, Chards does not possess a magic crystal ball where we can tell what the future will be. We will not waste your time and pretend that we know how the price of gold will end up. However, all the economic warning signs are there to see as mentioned in the previous section and will likely continue into 2020; it is not clear if anyone in the world’s leading financial institutions has any feasible solutions to these serious economic issues.
On top of this, the worldwide assault on physical cash will likely continue as well, and private investors would do well to find ways to keep their wealth “out of the system” and away from the prying eyes of greedy bureaucrats.
Geopolitical events such as war, trade disputes and elections can also spark economic shocks which can impact gold as well. Civil Wars in countries such as in Syria, Libya and Yemen could intensify and shake-up an already volatile region, dragging in more unwitting nations. Instability in the Ukraine is also mimicking a power struggle between Russia and the West. The United States Presidential Election will be held this year with President Trump seeking a second term, with the issue of trade relations with China likely to be a big issue, and there is also the future relationship between Britain and the European Union which needs ironed out. These are just some examples of what to keep an eye on in 2020 and any unexpected turn of event could be the spark that ignites another economic crisis.
The interested layman would do well to remember Rudi Dornbusch’s quote:
“In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could”
We would recommend to our customers to read a wide range of current affairs material, such as newspapers, books, magazines and online articles. Do not limit your news intake from a small group of outlets, make sure you take in a wide range of different opinions. In particular, the press releases and briefings from central banks and international financial institutions give interesting insights into the health of respective economies.
We can offer basic investment information and we like to keep any information we give as simple as possible. It should not come as a surprise to anyone that we advocate gold coins and bars as investment assets, but only a fool would invest in only one type of asset. Gold is an excellent addition to any investment asset portfolio but be sure to include a wide range of assets over time to spread out risks. In respect to what has been discussed in this article, gold offers a solid protection against economic turmoil, backed by 4,000 years of history, and if an investor has an opportunity to purchase gold then they should take it without delay.
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For more geopolitical news, you may be interested in exploring articles in our precious metal and coin news section of the website.