Gold tops $2,000 an ounce for the first time ever as falling dollar and a drop in real yields sent investors scurrying for alternative forms of protection.
Gold topped $2,000 an ounce for the first time overnight as a combination of the falling dollar and a drop in real yields sent investors scurrying for alternative forms of protection.
The price was still holding by the market open in London, at a bid price of $2,034, near the top of the day’s maximum and significantly above the 2011 peak of $1,987.
Bank of America Merrill Lynch said it now expected gold to hit $3,000 by early 2022, alongside significant gains in other precious and industrial metals. Base bellwether copper is up 6% this year, while silver is up 37%.
BofA analyst Michael Widmer wrote: ‘The simultaneous gains of base and precious metals has caused concerns among market participants over how fundamentally supported the rally is: gold is usually perceived as an anti-cyclical commodity, while copper tends to be viewed as linked to the strength of the business cycle.
‘While quotations of the various mined raw materials can indeed diverge at stages, prices have trended in the same direction more than half of the time since 1990.
‘The current macro-economic backdrop of loose monetary and loose fiscal policy reinforces that dynamic, so we believe the recent rallies can be justified. We expect gold to hit $3,000 an ounce in the coming 18 months. Some of the investor demand from investors for hard assets should also feed through into silver.’
Citigroup was more circumspect, targeting $2,300 by mid-2021 and pointing out that major emerging market central bank buyers, such as Russia and China, had paused their purchasing.
The gold spot price has rocketed around 33% this year as rates have been cut to new emergency lows. Real yields on major sovereigns, which factor in future inflation expectations, have more recently headed into negative territory, as investors calculated rates would remain low even as economies grew.
That was given additional impetus after the head of the Federal Reserve Bank of San Francisco said the US economy would need more support than earlier believed, further undercutting nominal yields.
Adjusted for inflation, the price remains well below the 1979 peak of close to the equivalent of $2,500 however, hit when the Soviet Union invaded Afghanistan.
More than $53bn has flowed into gold portfolios since the beginning of the year, fund data analyst EPFR noted last week. Exchange-traded fund investment have been a particular driver, attracting $43bn in assets.
Investment adviser Fairview Consulting noted that a number of UK active mandates had also seen significant gains with sector funds dominating July performance. ‘Eight of the top ten best performing funds were gold with Charteris Gold & Precious Metals rising 19.6%,’ it noted.
That’s nothing compared to the dramatic performance of Golden Prospect Precious Metals (GPM ), the purest play on gold in the closed-end investment companies sector.
This mighty £39m minnow has contined to advance since we interviewed the fund managers in April. This year so far the net asset value (NAV) of the Guernsey-based smaller gold miners investment company has grown an impressive 78.7% on the rebound in its investments, which had looked very cheap last year.
Golden Prospect shares have done even better, more than doubling to soar 117.8%, making it the best performing closed-end fund this year, as the discount - or gap between the price and NAV - has narrowed from 23% in January to 5% today.
The acceleration in 2020 has transformed its longer-term performance with the shares having delivered a total return of 254% over five years on the back of NAV growth of 211%.
Other mining trusts look lacklustre in comparison, their shares and NAV on average rising 14% and 12% this year and 109% and 110% respectively over five years.