Gold price ‘will hit $2,500’ as DIY investors and professionals load up on the precious metal
The gold price reached a record high of $1,944 (£1,511) per ounce yesterday as investor caution continues to push the metal’s value higher. Despite being in unchartered territory, analysts expect it keep on going well past the $2,000 mark.
A survey of more than 1,300 DIY investors, conducted by online gold market place BullionVault, showed they expected the price to rise by 30pc by the end of 2020. This would take the price well past $2,500.
The previous record of $1,920 per ounce was set in September 2011 but this took a steady five-year upward trajectory boosted by the response of central banks to the 2008 financial crisis.
The latest peak has occurred in less than half that time as central banks return to low interest rate policies and bond-buying programmes. Gold had been losing appeal, with stock markets the preferred space for most investors. For a while the American central bank was raising interest rates, muddying the outlook for gold. However, it began reverting to its old dovish ways – initially stave off an economic slowdown and later to counteract the devastating impact of coronavirus.
The main factors that drive investors to gold are interest rates and safety – both have boosted demand in recent months.
Near-zero interest rates are a positive for the gold price. When the yield from cash or low-risk government bonds are high, the appeal for gold, which yields nothing, diminishes. The reverse is also true, and low or negative yields push safety-seeking investors towards the metal, pushing up its value.
The outlook for gold is also linked to the strength of the US dollar. A weaker dollar tends to boost bullion as it is seen a store of value and the country’s bond buying buying programme is expected to weaken the currency.
Ben Seager-Scott of Tilney, a fund shop, said: “Gold acts almost like a pseudo-currency, except no central bank can print unlimited amounts of it and devalue it.”
Data from the Commodities Futures Trading Commission, the American regulator, showed optimism for gold among professional investors such as hedge funds, traders and banks peaked earlier this year and had reduced as the price has risen. However, there were still more buyers than sellers.