With a price surge of about 20% during the last 12 months, anyone who bought gold a year ago should be sitting pretty.
But such a vertiginous rise may be causing uneasiness among some traders and investors, prompting them to ask the question favoured by sceptics and the ultra-cautious: are we in bubble territory?
If the answer is yes, then the likeliest instrument to prick that bubble would be America’s central bank, the Federal Reserve. In a variation of the post-crisis theme that good news can be bad news, positive commentary from the Fed on the state of the US economy recently spooked holders of the yellow metal.
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More on that in a moment.
Not an inflation-adjusted peak
First, the remarkable rise of bullion. This morning it traded down 0.40% at $1,567.70. One month ago, on 10 January, it was worth $1,548.80 an ounce and three months ago, on 11 November, it stood at $1,465.50.
Go back 12 months, on 11 February 2019, it stood at $1,306.75.
For gold bulls, its low point was comfortably back on 3 May, when it traded at $1,270.05 and its peak was pleasingly close to the present, at $1,582.85 on 8 January.
The price seems to find support at below $1,280 and meets resistance at $1,600.
On paper, the price is touching all-time highs, but this takes no account of dollar inflation. As the US currency loses its value over the years, the price of gold, as a rival monetary asset, is inflated.
Put another way, the dollar is devaluing against gold in the same way as against any currency.
In today’s prices, the real peak came in February 1980, at more than $2,160, and even more recently the current price is below the inflation-adjusted level seen in November 2011, when it hit $1,983.
White House to the rescue?
These calculations help take some of the heat out of “bubble” fears, although it seems likely that some market nerves will remain. As with other non-ash assets such as shares and property, gold’s value has been greatly buoyed by the easy-money policies pursued by central banks since the financial crisis, as low interest rates and “quantitative easing” policies have depressed returns on conventional investments and sent investors and traders into those that seem to offer better returns.
But the gold price took a knock earlier this year after the Fed’s relatively benign outlook for the US economy raised the prospect of higher interest rates, which could dull gold’s lustre. On February 7, the Fed, having recapped its decision in the second half of last year to cut interest rates on three occasions by a total of 0.75 percentage points, suggested this process was now over.
It said: “In its subsequent meetings, the committee [the Federal Open Market Committee, which sets rates] judged that the prevailing stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labour market conditions, and inflation returning to the Committee's symmetric 2% objective.”
Perhaps the best hope for the gold price is President Donald Trump, who has made a habit of urging the Fed to lower rates rather than raise them.