Bad news boosts the gold price

Market jitters have seen investors push the gold price higher.

The gold price has bounced by 5% this month, marking the second time in a year that the $1,200-an-ounce level has provided support, as the markets have suffered a scare over global growth prospects. The jitters spurred the biggest rush into US gold exchange-traded funds (ETFs) since July.

Falling real (after-inflation) interest rates, a result of falling bond yields, have also helped the higher real rates are, the less appealing gold is, because it offers no yield. Solid demand for gold bars and jewellery in Asia, notably in the run up to the Diwali festival in India, has also buoyed prices.

So what next? The US recovery remains on track, implying higher interest rates. But this could well be offset by interest rates remaining at near-zero levels for longer and more money printing elsewhere.

In addition to more monetary loosening in Japan and Europe, all the money printing done so far could still lead to a surge in inflation over the next few years.

Meanwhile, as emerging Asian consumers and investors get richer, their demand for gold should climb, while emerging-market central banks have also been increasing their gold purchases in recent years. So there is scope for further gains. Capital Economics sees gold reaching $1,300 next year and $1,400 in 2014.

Recommended

Could gold be the basis for a new global currency?
Gold

Could gold be the basis for a new global currency?

Gold has always been the most reliable form of money. Now collaboration between China and Russia could lead to a new gold-backed means of exchange – g…
22 Sep 2022
Commodity prices are taking a breather
Commodities

Commodity prices are taking a breather

Commodity prices have fallen back after spiking early in the year. Iron ore is down 36% from its March peak, while copper has lost 20% since 1 January…
21 Sep 2022
The best way to invest in natural gas
Gas

The best way to invest in natural gas

David Stevenson looks at the best way to invest in natural gas as the demand for the commodity surges.
14 Sep 2022
Silver – the cheap precious metal set for a multi-week rally
Silver and other precious metals

Silver – the cheap precious metal set for a multi-week rally

Silver is full of potential – but it is a risky investment. Right now, however, it’s cheap and the outlook is positive. Dominic Frisby explains why.
14 Sep 2022

Most Popular

What to do as the age of cheap money and overpriced equities ends
Investment strategy

What to do as the age of cheap money and overpriced equities ends

The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losin…
29 Sep 2022
Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?
Budget

Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?

The government has launched the biggest dash for growth in 50 years, relaunching an approach known as supply-side economics. What is the plan – and wi…
30 Sep 2022