Gold Entering New Stage of Bull Run

Gold is beginning to decouple from the dollar and is posting hnew highs in other major currencies. This is a strong signal that gold is entering into a new stage of its bull run.

The yellow metal has gained 85% and hit an 18-year high since bottoming at $256 in early 2001. But the big news, says Adam Hamilton on, is that it has been posting new highs in other major currencies too. In euros it has finally broken through the €330 level and is now challenging €400; valued in yen and sterling it is also at multi-year highs.

This strongly suggests that gold is decoupling from its link to the dollar, and that the bull market is set to enter a second stage where rises in all currencies become self-reinforcing as they stimulate investment demand, which in turn forces prices up, creating a virtuous circle, says Hamilton.

Worries over inflation should also continue to underpin gold, says Finanzwoche. History shows that huge increases in the money supply global liquidity growth has hit a 30-year high over the past two years always lead to substantial jumps in inflation a few years later.

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Solid fundamentals add to gold's appeal, with demand outpacing supply and mines struggling to boost production. Gold's long-term relationship with oil and stocks also indicate that this bull is far from over. The gold/oil ratio is close to an extreme low, with an ounce of gold costing just seven barrels of oil, while notes that the Dow Jones to gold ratio is currently at 22 (10,300 divided by 475).

This is down from a peak of 40 in 1999, but the ratio is in a downtrend and "tends to swing to extremes once a shift occurs". It's still far from its historical lows of around five, so gold is likely to outperform stocks "for years to come",

A full list of articles may be found in our section on investing in gold, including when's the best time to buy gold, how to buy gold and Merryn Somerset-Webb's article: Why you'll regret it if you don't buy gold.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.