Gold prices continue to defy expectations of a rush back towards risk assets, with the precious metal – widely considered to be a safe-haven investment – recently hitting an all-time high a shade short of $1250 per ounce.
In a recent note on gold we discussed the factors pushing prices higher, balancing the view with a look at some of the economic pressures that tend to weigh on the metal. Since the time of writing there has been an upward movement of almost 100 points, with prices now fading again slightly.
Can gold build on its gains?
The first thing that seems clear now is that gold is no longer trading up purely on its short-term safe-haven status during the Greek debt crisis. While eurozone concerns have certainly been a catalyst for gold’s latest surge, investors are starting to see longer-term benefits to the commodity, with gold now widely considered a good hedge against attempts by governments across the world actively to devalue their currencies.
Some analysts suggest that prices may even reach $3000 an ounce over the course of the next five years as traditional assets likes bonds and shares remain rocky and governments keep inflation levels high to reduce their budget deficits. [1]
Gold bugs also point out that when adjusted for inflation, the price of $850 an ounce in 1980 was much higher than current levels – equivalent to more than $2200 an ounce in today’s terms.
The flipside, of course, at least in the short-term, is that gold will tend to retreat from its all-time high. This view is currently being borne out, with our Daily Spot Gold price at $1191 at the time of writing.
The other more bearish view on gold is that prices have simply been pushed to their current levels by economic uncertainty in Europe and that the financial aid package for Greece will see a return to conventional risk assets. Indeed, Greece’s decision earlier this week to take the first slice of a €110 billion loan has been a shot in the arm for Europe’s equity markets. This may well have contributed to the recent downturn in gold prices.
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Source: [1] The Daily Telegraph (20 May 2010)
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.
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Updated: 20/05/10