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Gold made massive gains last week, and currently shows no signs of slowing down – hitting all-time highs of over £1,500 early this morning. Global uncertainty surrounding the COVID-19 pandemic and its long-term effects, as well as US/China relations and the UK/EU Brexit situation have caused the prices of precious metals to surge.

*Gold price in GBP January 2020 - July 2020

Trouble in the Global Economy

With the world looking to face a long period of economic and political turbulence, many experts expect gold to continue to rise. As the COVID-19 pandemic currently strikes a devastating effect on the global economy, some experts are projecting a 4.9% contraction in global growth for this year which will see unemployment and destruction of wealth hitting high levels.

Recently, the UK has seen UK government bonds or gilts hit record negative yields, and analysts are stating that it could even take until 2024 for the UK economy to return to the size it was before the coronavirus lockdown. Forecasters are suggesting that unemployment will rise to 9% from 3.9% and the economy may shrink by 11.5% this year after consumers have appeared to have been more cautious than previously expected when lockdowns restrictions eased.

The US dollar is declining and has fallen over 4% against the pound over the last month alone, coinciding with huge spikes in coronavirus cases in many US states. The Federal Reserve is set to deliver its latest policy statement this Wednesday, which may signal weak expected growth for the US economy, which would most likely send the dollar even lower. This weak dollar, as well as worsening diplomatic ties between the US and China, is currently making hard assets like gold and silver more appealing to investors looking for a safe haven.

The FTSE opened down 0.2% this morning. In Spain the IBEX 35 fell 1.1% which is most probably due to the UK reintroducing the 14-day quarantine for those travelling from the country. Spain has now seen the appearance of some new clusters of COVID-19 and cases have risen to over 1,000 during the past week.

The Perfect Storm

The factors detailed above, as well as many others, all look to be creating a perfect storm to drive gold and silver prices upwards.

The gold market has continued to shift during the COVID-19 pandemic, as investors have increasingly turned to precious metals as a portfolio hedge. Historically, the gold price rises when the value of the dollar declines, but in recent months it has risen greatly across all major currencies as demand has grown through the pandemic. Gold also appears to be benefitting from the bold monetary easing by the global central banks in an attempt to tackle the impact of the coronavirus pandemic. An unprecedented level of money printing will no doubt make precious metals more and more attractive to those wanting a safe haven investment to protect their wealth.

The combination of low/negative government bond yields, a weakening US dollar, plus the long-term negative effects on the global economy all support why many will most likely still be turning to gold investment in the near future, driving prices further upwards.

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This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.

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