Gold has recovered its mojo

Gold has been on an impressive run this year, breaking through $1,800 an ounce.

At times of uncertainty, gold is an investor’s “weapon of choice”, says Myra Saefong for MarketWatch. The yellow metal has been on an impressive run this year, breaking through the $1,800 an ounce level last week to hit a nine-year high. In sterling terms gold has long surpassed its 2011 peaks. At £1,436/oz, it is up by 25% in a year.

The Royal Mint’s precious metals division says that sales tripled during the first half, says Shane Hickey in The Observer. Trading apps are helping bring a new generation into the precious metals market: 25-34-year-olds are the “fastest growing demographic”, says the Royal Mint’s Andrew Dickey. It is the monetary backdrop that largely explains the gold surge, Ross Norman of Metals Daily told Saefong. The waves of stimulus unleashed by the Federal Reserve and other central banks to fight the pandemic have sparked renewed concerns that inflation will return and that bond yields could plunge even further south. The result is that gold “seems to have recovered its mojo”.

The yellow metal’s most significant drawback is that it pays no interest, but at a time of near-zero interest rates and negative (or near-negative) government bond yields, not many other safe assets do either. That increases the attractions of one of the oldest stores of wealth. Record low interest rates are not going away, David Coombs of Rathbones tells Jeff Prestridge in The Mail on Sunday, so the rally should have further to go.

How much further? Goldman Sachs thinks the metal will hit $2,000/oz over the next 12 months, reports Callum Keown in Barron’s. With the US engulfed in another wave of the virus it will fall to Chinese investors – the world’s largest retail buyers – to drive the rally higher. The present climate is proving “ideal for gold”.

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