What’s Going On Here?Investors – apparently worried by the ongoing pandemic and worsening US-China relations – turned to their weapon of choice in times of uncertainty on Monday, pushing the price of gold to its highest level since 2011. What Does This Mean?Coronavirus seems to be getting worse in the US, which partly explains why the country’s government is aiming to announce another $1 trillion of support for workers and the economy. One possible result of all this spending, combined with unlimited central bank support, is rapidly rising inflation: more money sloshing around in the economy could see prices for goods and services rise quickly when demand returns – in turn eroding both the value of cash and the regular income paid by bonds. Investors reckon that’s an environment that’ll suit gold, and they’ve been buying up the shiny metal. It’s now worth over $1,900 an ounce, and some analysts think it’ll soon cross the $2,000 mark. Why Should I Care?For markets: Pedal to the metal.
Gold’s price rise might’ve been supercharged by the recently weakened US dollar: the commodity – whose price is quoted in dollars – might be more attractive to non-US buyers when the currency is cheaper. That might’ve helped silver’s recent price rise too, though it does tend to rise more than gold in an economic recovery. Investors, then, might just be hedging their bets, backing gold and silver so they profit no matter what happens.
For you personally: All that glitters ain’t gold.
When currencies like the dollar became widely used, gold’s value partly came from its usefulness as an emergency currency. But buying gold nowadays is arguably not much more than speculation: investors generally buy it in the hope its value will rise if stocks fall (they’re “negatively correlated”). Of course, that didn’t exactly pan out during March’s selloff, when investors responded to falling share prices by selling off “safe” assets like gold to cover their losses – meaning its price also fell (tweet this). | 