If you liked this article, find more expertise in our gold series:Ĭountries went on a gold-buying spree before coronavirus took hold – here’s why The 2011-2018 decline in gold prices, following a bullish period, is a good example to keep in mind. For example, if a viable medicine for COVID-19 is developed, and/or the US dollar strengthens, gold could move in the opposite direction. This will put a downward pressure on gold prices.Įqually, the situation may well change if the current uncertainty is resolved. If bad news causes stock markets to fall again, investors may well sell off gold and other commodities to finance their losses in other assets. The more negative news on economic growth, the greater the increase in the price of gold.Įven then, the direction of travel may not be straightforward. To the extent that there is more uncertainty to come about the prospects for economic growth, including from COVID-19, and if low interest rates prevail, gold prices may well continue to rise. Nick Fewings, CC BY-SAįorecasting asset prices has never been easy, however, and investors always need to be cautious. Instead, gold and crude oil seem to perform distinctly from the rest.ĭon’t gain the world and lose your gold. This highlights the distinct characteristics of gold and other commodities, to the extent that there is arguably no such thing as a commodity asset class – as I have emphasised, among other commodity investment pitfalls, here. Interestingly, this is not the case when investors start adding other commodities, such as cotton, copper and live cattle. This was true even after the risk of investment and the transaction costs are taken into account. We found that investors who included gold in their portfolios alongside stocks, bonds and cash were better off in the period from 1989 to 2009. In another paper, we documented that prices can be affected by the level of inventories of commodities –meaning how much is being held in storage – and the extent to which people are hedging against their prices going up or down. I have been involved in this research, for instance co-authoring findings that the margins that brokers charge on gold futures contracts can affect prices. As with most things, the truth probably lies somewhere in between. This turns on whether gold is essentially a financial product or a physical commodity. For instance, since the so-called commodity boom in 2005, there has been a heated debate about whether gold prices (and commodities more broadly) are driven more by economic fundamentals or by the behaviour of speculators and ETFs. For more articles written by experts, join the hundreds of thousands who subscribe to our newsletterīut as to how each factor exactly influences gold, the academic literature shows very mixed results for some of them. The Conversation brings you five essential briefings by academic experts on the world’s favourite precious metal. Still it glitters from central bank vaults to jewellery bazaars the world over. Gold has enthralled humanity since ancient times.
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