Yesterday I wrote gold spot prices were close to hitting a milestone: US$1,800 an ounce. You can read all about it here.
Well, they hit that target overnight. The gold price reached US$1,818 before settling down to US$1,809.21 at time of writing. The last time gold was up this high was back in 2011.
Needless to say, Australian gold miners are loving it.
What’s pushing gold prices?
Gold prices feed on uncertainty, and there’s a lot of that going on out there.
It’s increasing demand for gold.
I mean, you only need to look at places like Perth Mint’s website to see gold buyers are facing delays if they want to get their hands on physical gold.
Another factor pushing gold prices is the worry of inflation.
So far, with people stuck at home, demand is staying subdued.
But there are some factors that could bring back inflation.
For one, we have central bankers flooding the system with an unprecedented amount of money. With US virus cases rising and this affecting the economy, we could see even more money pumped into the economy.
From the Australian Financial Review today:
‘The US economy seems to be levelling off amid a rising pace of virus infections rises, Federal Reserve Bank of Atlanta president Raphael Bostic said, potentially warranting more action by the central bank or fiscal authorities.
‘“The Fed definitely needs to think about whether more is necessary and really understand the nature and causes of the shortfalls,” Bostic told reporters Wednesday (Thursday AEST) after a virtual speech to the Rotary Club of Columbus, Georgia.’
The other issue is that the pandemic is hitting our supply chains. There is the risk of disruption from people getting sick from the virus, but also these lockdowns make it costlier for businesses to trade. At some point, we could see businesses pass those costs onto customers.
And this virus has made countries realise they need to secure their supply chains. For years globalisation has pushed prices down. Bringing some of that production back home would surely be inflationary.
If you’ve ever experienced high inflation, you know it acts like a tax, robbing you of your earnings…and gold is a great hedge against inflation.
What could happen next?
This is certainly not shaping up to be a quick recovery. With risk, virus cases and uncertainty increasing, the gold rally looks ripe to continue.
One way to get exposure to gold is through owning physical gold. Another is through gold stocks. But it’s not easy to pick the winners…
Check out Greg Canavan’s free report on ‘How to Pick Winning Gold Stocks’.
You can access it here.