The remarkable run-up in the bullion price seems to have been given fresh impetus by the coronavirus outbreak.
With the value of paper assets such as shares crashing round the world, gold is more than holding its own, fulfilling its time-honoured role as a safe haven in times of trouble.
This morning, there was a modest decline of 1.57% to $1,655.90 an ounce, but the bigger picture shows an extraordinary rise over 12 months.
Next price breakthrough
One month ago, on 27 January, the yellow metal traded at $1,583.45, while three months ago, on 26 November, the price stood at $1,457.65.
Twelve months ago, on 26 February 2019, gold was priced at $1,326.45, meaning a rise of nearly 25% since then.
Even before the coronavirus outbreak, there was enough unsettling news in the world to prompt investors to seek out bullion, famously the only asset that is nobody else’s liability, thus has a value that is unaffected by someone else’s ability to pay.
But what is alarming some is that gold’s traditional rival as a safe-haven asset, the US dollar, has also been in demand. One year ago, on 26 February 2019, it traded at €0.8781 against the euro and is currently changing hands at €0.9182, meaning a rise of just under 5%.
Trade Euro / US Dollar CFD
Usually, the two assets have something of an adversarial relationship, not least because the dollar is the currency in which gold is price. So, a rise in American interest rates, making dollar assets more attractive, would normally be expected to take some of the steam out of demand for bullion.
However, when both gold and the dollar are rising, that suggests a level of investor anxiety that is buoying demand for reliable assets of all kinds, albeit the increase in the gold price during the past 12 months has been five times that of the dollar’s appreciation against the euro.
Now, “gold bulls” are looking at what they expect to be the next price breakthrough, with gold crashing through the $2,000-an-ounce barrier. The momentum seems to be with them, as the metal is currently at or near its 12-month peak.
Is decline an early sign?
But this morning’s small drop suggests it may run into resistance approaching $1,700.
Furthermore, vociferous “bullion sceptics” in the market tend to come to the fore whenever gold’s popularity is stoked by crises such as the coronavirus or by suggestions of a slowdown. They allege that gold’s supporters claim it offers protection against, variously, inflation, deflation, excessive economic booms, deep recessions and geo-political disruptions.
No one asset, they say, can perform all these different tasks.
It could be that this morning’s price decline is an early sign that such sceptics are being listened to. But for now it seems more likely that the up-trend will continue, at least towards $1,700 if not through it.