Overnight Gold pushed past $2000.00 per ounce, and we are already seeing gold lovers talking about the $2100 and $3000 levels. It truly is a remarkable run for gold, this year alone it has had a rally of 32%, and year over year it has risen 38%. The driver of this phenomenal move up has been uncertainty; uncertainty in the economy, in the government and uncertainty in a vaccine.
Much of the demand has been driven by investor’s ploughing into gold-based exchange traded funds, holdings in Gold-ETFs have been hitting record highs for much of the year, with over $40b added in the first half of 2020.
With so much turmoil in the world it is evident that investors are concerned if they weren’t worried gold would not be as valuable as it is. Interestingly its likely to go higher, no resolutions stand in clear sight for much of the pandemic driven issues globally, which is the first point. The second is that by comparison investor stock vs gold ratios are still nearly half what was seen during the 1980’s. Further to this, if we factor for inflation, gold is still $500 off its all time high, so for gold to move beyond the $2,100 and up to the $2,500, is not that farfetched.
Typically, investing in gold, you would see gold having a disadvantage to bonds, purely because gold does not pay dividends. Today however with the declining real yields, and rising inflation, gold demand is surging. It almost offers a 2 for 1 partial hedge, particularly for equity portfolio traders who might otherwise use bonds to hedge under normal conditions.
To me the prospect of this shining metal continuing to increase in value holds more than a degree of logic, for many it has been an asset of absolute conviction. In truth I feel its more that investors have no conviction in anything else, and sentiment can be fickle.