The price of gold has been soaring this year since the onset of the coronavirus pandemic. Recently, it passed $2,000 per ounce for the first time in history. This represents a more than 30% increase in price since the beginning of the year and a 70% increase since 2018, and many experts believe that the price of gold could increase even higher this year.
The reasons for the surge in the price of gold are many and complex. They include the following:
1. The Lack of Certainty
Perhaps the biggest reason for choosing to invest in gold is its stability. In times of great uncertainty such as these, gold brings certainty. Gold is traditionally impervious to rising inflation and stock market declines. When everything else is losing value, this is when gold particularly shines. This is because gold has always held its value and has long been a safe haven when nothing else is.
While the virus continues to cause volatility in not just markets but throughout society, there is no telling how high the price of gold may rise.
2. Growing U.S.-China Trade Tensions
A more immediate reason as to why gold has been rising during the pandemic has been rising trade tensions between the United States and China during this time. While tensions between the two countries have been high since President Trump took office in 2017, this January these tensions eased considerably with the signing of a preliminary trade deal.
But the onset of the virus has caused tensions to spike once more. First, because of how President Trump blamed China for the virus, and more recently with the closing of consulates and the president’s threats to ban TikTok. All this has many worried of a major economic slowdown, which has made gold attractive to investors.
3. Low Treasury Bond Yields
In response to the pandemic and all the economic fallout resulting from it, the U.S. Federal Reserve lowered interest rates to close to zero, in an effort to make borrowing more affordable and hopefully spur growth in the economy.
A side effect of this is that it has resulted in near historical lows in treasury bond yields. So, buying treasury bonds, which are a traditionally safe investment, are not as attractive as they normally would be. This, in turn, has made gold more attractive.
4. The Low Value of the U.S. Dollar
Another factor leading to the surge in the price of gold during the pandemic has been the weak U.S. dollar. This has made gold especially attractive to investors outside the United States who hold currencies other than dollars, as the price of gold is cheaper for them in these currencies.
The sharper the dollar continues to fall as the crisis goes on, the more likely the surge in the price of gold will continue or even strengthen.
5. Mass Interest in Gold
The steep rise in the price of gold cannot be completely explained by rational factors. Investors are human and will often invest in whatever they think is hot at the moment. During this crisis, there has been a lot of media interest in gold investing. This interest has helped spark sales, which in itself has sparked more sales and higher prices.
It is hard to predict how the intense interest in gold investing right now will affect prices going forward. It should be noted that this same mass interest in buying gold could eventually lead to a similar interest in selling it.
There are many good reasons as to why the price of gold has risen so sharply in conjunction with the coronavirus pandemic. What’s more, as long as the virus continues to rage on, these reasons will likely continue to fuel gold’s surge.