Gold has enjoyed a glittering 12 months, propelled higher by a mixture of US interest rate cuts, geopolitical instability and a search by investors for rock-solid assets in a turbulent world.
This morning, the price stood at $1500.00 a Troy ounce. A month ago, on 5 September, it stood at $1,542.60 but three months ago, on 5 July, the price was $1,414.40
On 5 October last year, it was $1,201.10.
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Bullion attraction burnished
The chart shows a major appreciation in the gold price or, if you prefer, a depreciation in the value of the dollar against its rival safe-haven asset. This run-up in bullion’s value really took hold after 31 May, when the price was $1,296, from which point it rapidly moved up to $1,415.25 by 4 July and to the 12-monthly high of $1,542.60 seen on 5 September.
Bullion prices have been bolstered by the U-turn from the US central bank, the Federal Reserve, which had been gradually raising interest rates until the turn of this year, when it switched to a more downbeat view of economic prospects and softened its monetary policy stance.
Two cuts this year have taken the target range for the key federal funds rate from 2.25%-2.5% to 1.75% to 2%. This makes dollar denominated assets less attractive and burnishes the attraction of gold.
Falling interest rates combined with the sort of political uncertainty seen with regard to Brexit and to President Donald Trump’s clashes with his opponents make for a near-ideal climate for gold.
By contrast, when rates rise, gold becomes less attractive than paper assets such as shares or cash. Not only does it produce no return, but costs money to store. The ebbing of political and diplomatic tensions from the late Eighties onwards saw the gold price under constant pressure, from which it recovered only at the turn of the Millennium.
Central banks have been buying
But the chart mapping the dollar’s exchange rate against the euro does not suggest chronic dollar weakness. In fact, the US currency is currently worth €0.9104 having traded at €0.8685 on 4 October last year.
Investors and traders seem to see little to choose between two major currencies both of whose central banks are engaged in loosening monetary policy to stave off recession.
Gold broke through the $1,300 barrier at the end of January, moving up smartly to crack $1,400 in late June. The $1,500 level was breached in mid-August, but the price has had some difficulty remaining above it.
Increased buying from central banks has also supported the price. Earlier this year, the industry body the World Gold Council reported that reserve institutions including those of China, India, Russia and Poland had been active in purchasing gold.
However, not everything that glitters in the world of gold. Last month, an ambitious tech start-up, Glint, collapsed. It had been designed to allow people to buy physical gold, the value of which would then be loaded on to a debit card, allowing them to pay for goods and services in bullion. As the Financial Times commented: “If gold has any purpose beyond jewellery making, it is as a tangible, personal store of value in a crisis, not as a medium of exchange.”