What’s up with the price of gold?

By Grace Ormsby

July 30 2020
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In today’s negative yield environment, buying gold to diversify and decrease market volatility “has never been so favourable” – and it’s why the price of gold is peaking, according to a market analyst.

Bell Direct market analyst Jessica Amir has told nestegg that there are five major factors that contributed to gold’s hitting of a brand-new record high this week of US$1,980.57.

It’s not a new phenomenon though – “over the last five decades, gold has predominantly been seen as [a] place to invest in uncertain times as it offers reserve currency characteristics”, Ms Amir explained.

Despite offering zero yield, gold has even produced better returns than cash while also producing “equity-like growth (returns)” since 1971.

“We are living amid a once-in-a-100-year pandemic, the global economy is contracting and currencies around the world are also stumbling at the same time,” the market analyst said.

Here are the five major reasons for the record highs, according to Ms Amir:

Geopolitical concerns – the continued tension between the United States and China
Economic slowdown fears – the United States has officially entered a recession this week, after revealing a second straight negative quarter of growth in 2020
Bond yields continuing to fall – these have an inverse relationship to gold
The US dollar is also falling, with investors rotating out of the currency and into gold
Investors increasing their exposure to gold – according to Ms Amir, the third-largest money flows from ETFs have been into gold ETFs as investors use gold to hedge their portfolios.

So, could the price of gold push even higher?

According to Ms Amir, “The fundamentals suggest yes.”

“COVID-19 cases are continuing to rise, unemployment is at record highs, economic support has been unprecedented and the US government is negotiating another support package,” she outlined, noting how investors use gold to speculate on dire situations in the economy.

“In today’s environment of negative yields, buying gold to diversify and decrease market volatility has never been so favourable,” she continued.

It led her to predict that demand will lift even higher on the precious metal.

The market analyst is also partial to the asset class herself, highlighting that “many studies suggest when investors have 5 per cent of their investment portfolio in gold, their overall portfolio volatility reduces, while investment returns increase”.

She advised that gold, ASX-listed stocks or ETFs “can play a big part in smoothing out overall portfolio performance, so if you don’t have gold exposure in your portfolio, now might be the time to start thinking about it”.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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