Gold price hits new all-time highs, with expectations of further gains of 30% this year

Gold investors are not expecting a reversal of fortune for the yellow metal. 

The price of gold has risen above $1,900 per ounce, breaking the previous record of $1891.90 per ounce set in August 2011. It touched an all-time high of $1,971.78 yesterday, 28 July, and is currently trading at just under $1,960.

The price rise has underpinned stellar performances from funds investing in gold miners over the past quarter, with the best-performing Money Observer Rated Fund, Ninety-One Global Gold, up 55% over three months to the end of June. 

Demand for the yellow metal tends to rise in the face of macro-economic and market concerns, as investors seek out safe havens for their wealth. Investors are worrying about recurrent outbreaks of Covid-19 and the US’s struggle to get the disease under control, and the implications for US economy on the back of the pandemic, as well as rising international tensions with China.

Anthony Rayner, multi-asset fund manager at Premier Miton, adds: “Related to this, the massive monetary and fiscal response globally, and the potential for related inflationary pressures, would also be supportive of a higher gold price.”

More fundamentally, gold’s rise is also related to the weakness of the US dollar and falls in real yields from US Treasury bonds; but as Rayner points out, “over the shorter term, as with any asset, speculation can dominate more than these ‘fundamentals’. That said, all of these factors are arguably behind the recent rise in gold.” 

Gold investors are not expecting a reversal of fortune for the yellow metal any time soon. According to online gold and silver market BullionVault’s latest user survey, almost 80% are expecting the price of gold to rise further by up to 30% before the end of this year, fuelled by worries over global financial stability as the pandemic maintains its grip on the world.

More than 1350 precious-metal investors responded to the survey. Two thirds are most concerned about defaults and bankruptcies as a result of coronavirus. In contrast, only 8% cite inflation as the biggest threat to financial instability, with even smaller proportions concerned primarily about failure to find a vaccine for Covid-19, political uncertainty or social unrest.

Adrian Ash, director of research at BullionVault, comments:“Gold is often thought of as an inflation hedge, and that's the long-term appeal for most investors holding precious metals today. But shorter-term, as the world economy tries to re-open after the Covid shutdown, the risk of mass bankruptcies and debt defaults present the greatest immediate to global financial stability.”

In recent years, gold investors’ concerns have centred around geopolitical issues such as Brexit, US presidential elections and the US-China trade talks; but these have slipped dramatically down the ‘worry list’ of key factors affecting the price of gold in the latest survey, from 29% in December 2019 to 18%.

More than a third of respondents (35%) now believe monetary policy by governments worldwide will be the biggest single driver of the gold price (up from 26% in December), with governmental budget deficits in second place, cited by a fifth (up from just 12% in December).

"People invest in gold because they're worried about the value of other assets, such as stocks and shares and indeed money itself. With central banks now supporting record government deficit spending quite openly, meaning their independence is gone, investors in precious metals believe this is going to be one of the largest drivers of the gold price this year,” comments Ash.