Five reasons why gold has surged to its highest price in 9 years
The current surge in gold prices recalls the last gold rush in 2009 to 2011, when the price skyrocketed from $1,000 to $1,920 per ounce as central banks worldwide fought the global economic crisis with stimulus measures.
This time, the rise in gold prices since 2019 is being driven by five factors:
Weak economies: Central banks are easing monetary policy to stimulate their economies. The resulting liquidity injections and interest rate cuts have caused investors to switch from government bonds with declining yields to gold.
Tensions between countries: Uncertainty following tensions between the US and China in 2019 and between US and Iraq at the start of 2020 caused investors to seek “safe haven” assets that maintain value during market volatility.
Covid-19 outbreak: This unexpected factor boosted the gold price to over $1,600 per ounce at the beginning of this year. Meanwhile, it caused the global economy to shrink further, forcing central banks to inject more liquidity into the economic system.
Recently, the European Central Bank (ECB) injected €750 billion into the economic system as part of recovery efforts, triggering fears of inflation.
Weakened dollar: When the dollar as a major world currency weakens, the price of gold will increase to compensate for the decline in currency value. The dollar is weakening because US public debt has increased continuously, sparking concern that the US may not able to repay the mounting debt.
Increasing gold demand: Investment funds and central banks decided to hold more gold as a “safe haven” asset.
Recently, SPDR Gold Trust, the largest gold fund, increased its holding by 0.7 per cent to 1,219.75 tonnes. Meanwhile Russia’s central bank has bought over $40 billion in gold over the past five years, building a huge gold reserve of $120 billion.
