Since 2009, gold prices have been on a roller coaster ride, though nothing as mind blowing as the price of bitcoin. Still, for gold, the changes have been drastic. From highs around 1,900 USD per ounce around September 2011, to less than 1,050 in December 2015, and back to a new high over 2,000 in August 2020, then down again to less than 1,700 in March 2021 and back to over 1,900 in at the beginning of June.
Inflation Woes Driving Prices Up?
In the wake of the pandemic, investors are now more convinced about holding gold in their portfolios for various reasons, especially as a hedge against inflation or worse, the collapse of a national currency. Countries around the world have printed money at a record pace to keep their economies going during the pandemic, and all that excess liquidity has to go somewhere. Even countries like the US have at times printed more money in a single month than in the whole of the last 2 centuries.
At the end of April 2021, US inflation soared to a 13-year high. The case is the same in other major and minor economies. Still, central banks are unable to do anything about it, such as increase interest rates, because that would trigger massive debt defaults. Most governments are merely keeping their economies afloat and avoiding debt crises by providing large scale debt repayment relief schemes and moratorium programmes.
These conditions have put investors on edge, and gold has always been a safe bet in times such as this. Unlike cryptocurrencies, the price swings of gold are small and it is also an asset that has a sort of universal acceptability. Thus, those who are interested in preparing for economic troubles, or at least hedging against inflation, are looking to gold.
Sovereign Reserves Major central banks like those of India, China and Russia have quietly been on gold buying sprees. Even through 2020, Russia’s gold reserves grew by over 7%. The country now has the 4th largest international reserves in the world at close to 600 billion. This is further adding to the case for gold as it appears that even nation states are looking to obtain the precious metal in order to insulate themselves against inflation and potential currency crises. Ultimately, the high demand for gold, coupled with inflation in the US economy and around the world, is likely contributing towards an increase in gold prices along with general USD weakness.
