Gold prices are closing in on an eight-year high. The metal is now around $1,785 per ounce. That’s getting close to its old all-time high around $1,900 per ounce.
Gold’s price has been moving up for the past four years now, ever since bottoming around $1,050 back in early 2016. Gold’s rally is part of a multi-year trend.
But now, thanks to a global pandemic and a rush of liquidity by central banks and government stimulus, gold’s long-term rally is entering into an accelerated phase.
Gold is now on track to break through its old highs within the next year. And chances are, it will shatter the old record by the end of next year.
When interest rates are out of whack, investors turn to gold. It’s counterintuitive, but it’s true.
We saw this the first time the Federal Reserve cut interest rates to zero during the financial crisis. Gold was perceived as a safe-haven against all the money creation and stimulus being thrown at the economy.
From the 2009 bottom of the stock market until 2011, gold outperformed stocks, even as an apparent recovery was underway.
The last few months of the 2011 move were parabolic. That move gradually unwound within several years. But at one point, stocks were up only a quarter as much as gold.
Today, with that same government crisis playbook, it’s easy to see why gold makes sense.
It doesn’t pay investors any dividends or interest. Yet, with many companies eliminating dividends, and with interest payments on bonds now sliding from zero percent Fed rates, gold comparatively shines.
But in the 1970s, when inflation was soaring, gold prices had a phenomenal return. That inflation was also the result of fearful monetary policy as well.
The uncertainty of interest rates continually rising was a very real threat back in the late 1970s, and gold was seen as a store of value. Today, it’s simply falling rates, potentially even negative ones.
Add in trillions in money printing in addition to low rates, and it’s easy to see why investors still love the metal even with the stock market recovering today.
Meanwhile, demand for the metal remains strong. Retail investors started buying up bullion during the market crash earlier this year. Many locations ended up running out of inventory as a result.
But this wasn’t just retail investors hitting up their local coin shops before turning to Robinhood to day trade. Large institutions have been buyers of the metal for years, hitting a 50-year high in late 2019.
While there have been some signs of a slowdown in recent months, central banks often downplay their gold purchases and sales. However, they’re still net buyers, even at prices for the metal last seen in 2012.
Then there’s China. They’ve bought all of their internal gold production in recent years. They even reported a whopping 62.64 million ounces in reserves at the end of May.
Gold’s rally has been going on for years. But 2020 marks a turning point where the metal’s move higher has gone mainstream.
Low interest rates, outright money printing, and strong demand point to higher prices.
We may be in for another parabolic rally that crushes the old all-time high prices in the next 12-18 months. Hang on.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.