Gold is poised to glitter again

It has been a dispiriting year so far for gold investors, but the yellow metal could be poised to glitter again. Gold prices started the year around $1,900/oz but fell back as investors piled into “risk-on” assets in anticipation of economic reopening. This year’s cryptocurrency mania has also stolen some of gold’s thunder as a hedge against currency debasement by central banks. By early March, the price had tumbled to $1,700/oz. June was the metal’s worst month since 2016. Yet gold has perked up to trade around $1,820/oz this week. It has risen by 2.5% since the start of July in dollar terms.

Why? Because of gold’s traditional role as an inflation hedge. Inflation surged to 5.4% last month in the US and also went over the central bank’s target in the UK. Unlike the dollar, gold is “a currency that cannot be manipulated by central banks”, Catherine Doyle of Newton Investment Management told Sam Benstead in The Daily Telegraph. Mikhail Sprogis of Goldman Sachs thinks that gold “should be worth at least $2,000 today” given the inflationary outlook. The bank is advising clients to “snap up the precious metal”, says Benstead.

Gold hit an all-time high of $2,063/oz last year, but it has since lost 10%. Long term buyers won’t be too put out though. Investors who bought five years ago are still sitting on a 37% gain; 20 years ago, gold was trading below $300/oz.

MoneyWeek

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.