Gold is down on the month in a trend that may ring alarm bells for bullion backers.
Until recently, Gold has enjoyed a bull run in the past 12 months. On 23 October 2018, the price stood at $1,235.60, climbing to $1,417.55 by 23 July.
Similar trend in euros and pounds
The question now is whether the softening in the price seen during the past month is merely a pause for breath or a sign that gold is past its peak.
One problem with following the gold price is that it is stated in dollars (USD). Not only is the dollar the chief rival to bullion as a “safe haven” asset, but it can be hard to work out whether a rise or fall in the price has been caused by fundamental reasons or by what amounts to an appreciation or a devaluation against the US currency.
In the case of the last 12 months, the gold price as measured in other currencies suggests the trend has been caused by factors other than movements in the value of the dollar. In terms of the euro, gold stood at €1,082.28 on 24 October 2018, rising to €1,389.74 a month ago, on 24 September, and falling back to €1,330.98 today.
Its sterling value followed a similar pattern, from £951.06 on 23 October 2018 to £1,1221.58 a month ago, on 23 September, and easing to £1,162.60 today.
Hopes of a resolution to the US-China trade dispute may be bad news for gold, as it would signal that paper assets such as shares will become more attractive. But another American interest-rate cut could burnish bullion’s appeal as it would diminish investor appetite for dollar assets.
“Barbarous yellow relic”
History teaches that when a long-term fall in the price sets in, it is very difficult to reverse. From a peak of more than $800 in 1980, bullion prices crumbled for the next two decades, trading well below $400 between 1995 and 2003.
Events that could have been expected to break the downtrend by pushing investors into safe-haven assets, such as the US raids on Libya in 1986 and the 1990-1991 Gulf War, had little effect. Many central banks ran down their holdings and, with the end of the Cold War and the spread of globalisation, some believed gold’s monetary role was over.
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Others suggested gold had never been a monetary asset in the first place, citing the remark attributed to the economist Lord Keynes that it is a “barbarous yellow relic” and asking how it can, as claimed by some bullion supporters, manage to offer protection against both inflation and recession.
But fans of the metal stayed loyal, pointing out that it is, uniquely, the only asset that is no-one else’s liability.
However, since the 2007 credit crunch leading to the 2008 financial crisis, gold has never traded below $600 an ounce and has rarely been below $1,200 since the start of 2017.