Gold Prices at Record Highs

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Why Gold is Smashing Through Milestones

As global economies slip deeper into recession, there’s a bright beacon of hope on the horizon: gold. In the midst of all the uncertainty triggered by the Covid-19 pandemic, gold prices have been skyrocketing across the globe as international bullion markets are thriving. Investors everywhere are looking at gold as a safe investment haven in a world of chaos.

Gold Prices Rising Beyond Expectations

Gold prices have hit record highs this year. At the start of July, Forbes predicted that the precious metal would reach the critical $1,800 mark. By the penultimate week of July investors had already pushed prices beyond this to around $1,900, and by the end of the month the spot gold price on the NY Mercantile Exchange rose to over $1,944 an ounce. With this staggering increase of around 27%, it has beaten the previous record set in 2011 by over $20 and is performing better than almost all other commodity markets, stocks and bonds. With this momentum, it’s likely that gold will continue on an upward trajectory in the next few quarters.

Mining Africa - why are gold prices surging?

Factors Driving the Upsurge

Gold prices fluctuate because of various factors, for example:

  • Monetary policies – The biggest influence on gold prices is the monetary policies as depicted by the Federal Reserve. This is affected by interest rates and other factors.
  • Supply and demand – As with any other commodity, gold prices depend on what the market demand is at the time. Not much gold is mined every year so if the demand increases, the price will shoot up.
  • Inflation – As inflation rates rise, other investment avenues and currency values decrease. This generally increases gold prices because it is known as a perfect hedge.
  • Economic data – Job reports, manufacturing data, wage data, GDP growth etc. all influence gold prices.
  • ETFs – Electronically Traded Funds (ETFs) are not a major market mover but still worth mentioning. In a nutshell, these are basket funds available to investors that allow for increased liquidity. Purchasing activity is determined by buying and selling of physical bullion based on investor demand, and is likely to have a positive impact on the price of gold.

Mining Africa - why are gold prices surging?

The current extraordinary upsurge in gold prices is influenced by an interplay of all of these factors as well as international geo-political tensions, trade strife and pandemic-related disruptions. As Covid-19 continues to push international markets into one of the harshest declines in recent history, a general sense of insecurity prevails. This, and the ongoing trade tensions between the United States and China, are further contributing to these record-setting highs.

Even though this drastic rise is currently highlighted, the upward trend already began a few years ago. Current chaos around the world just intensified it. Since the final quarter of 2018, gold prices have been rallying and more gains have been recorded in the longest run since the financial crisis in 2007/8.

What’s Next?

A continued upsurge in gold prices is largely dependent on the situation with the Covid-19 pandemic. Because there is no realistic prospect of a vaccination by 2021, local shutdowns around the world will likely continue, and so economic recovery may be limited. While this could spell disaster for companies and individuals around the world, gold investors will benefit. The pandemic’s devastation could mean a strong chance of percentage gains for the gold price in the near future. According to Goldman Sachs, the price of gold may even continue the upward trajectory all the way to $2,000. Indian jewelry brand PN Gadgill believes that it may even hit $2,500 in the international markets.

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