Gold prices have surged due to ongoing economic uncertainty caused by the coronavirus pandemic. But experts say there is no end in sight.
Gold prices have surged due to ongoing economic uncertainty caused by the coronavirus pandemic. But experts say there is no end in sight.

Why the gold price is soaring

The gold price is expected to keep soaring as the factors driving it higher won't likely change any time soon, with one analyst tipping it could hit $US3000 an ounce.

Investors set the price on a more or less steady upward trajectory when the global financial crisis hit in 2007-08 and it peaked in September 2011 at over $US1800 an ounce.

The price of the safe haven asset only returned to those levels in July and has risen about 15 per cent in the past month, fetching more than $US2060 an ounce on Friday.

MineLife managing director Gavin Wendt said the double whammy of the COVID-19 pandemic and the ensuing economic calamity had again made gold a money magnet.

"It's pure and simple uncertainty," Mr Wendt told NCA NewsWire.

Central banks around the world tossed colossal amounts of cash at the GFC and have thrown more at the current financial crisis but it hadn't had much impact, he said.

"The natural thing to do is lower interest rates, but they are already low, so you don't have much capacity to respond," Mr Wendt said.

"That has been the big difficulty and I think that's where investors have got concerned."

Gold prices are tipped to soar beyond current record levels.
Gold prices are tipped to soar beyond current record levels.

Yields on government bonds, another safe haven investment, are so low that money has flowed to the sharemarket, which has become "divorced from reality", Mr Wendt said, with the high price of many stocks not reflecting the company's earnings.

"There's all this money out there looking for a home," he said.

"Smart investors say the sharemarket is set up for a ridiculous fall."

In recent years, investors in the western world have poured into gold exchange traded funds, which trade just like ordinary shares.

They appeal to those who don't want the hassle of owning physical gold, given the need for secure storage, or the risk of backing a gold mining company, which could make production mistakes and miss targets.

Another major factor pushing up the gold price is ongoing purchases of physical gold by central banks in Russia, China and India, Hartleys resources analyst John Macdonald said.

"India has always been there but China and Russia, since 2007 or 2008, started buying," Mr Macdonald told NCA NewsWire.

"The central banks of Europe, which were net sellers prior to 2007, stopped selling so you had that double whammy.

"The ETF demand has come on top of that."

The gold price should keep climbing even if a coronavirus vaccine is developed because "the economic damage has been done", Mr Wendt said.

If history repeats itself, it could rise for the next three years, he said.

"There's every prospect the gold price could get to $US3000 an ounce. I don't think there's anything in sight that will stop it."

Originally published as Why the gold price is soaring



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