Gold loves a crisis, the old adage goes. And with prices up 13% this year to their highest since 2012 and many predicting further gains as investors search for safe places to put their money, it looks true for the coronavirus crisis so far.
FILE PHOTO: Gold bars are seen at the Kazakhstan's National Bank vault in Almaty, Kazakhstan, September 30, 2016. REUTERS/Mariya Gordeyeva
But gold is not so straightforward, he said. “Look at 2003-2012, gold basically went up in every possible scenario. Boom, bust, crisis, no crisis. Then for a few years it just went down every year.”The first was triggered when governments gave up control of gold prices and relaxed prohibitions on private ownership around 1970.
Then the tide turned, as the structure of the market changed. European central banks agreed to coordinate sales, stabilising prices. China allowed more people to own gold, and purchases soared. Exchange traded funds , which store gold on behalf of investors, also provided an easier way for people to hoard gold bars.
Early in that crisis, gold prices fell sharply as a broader plunge across assets forced investors to raise money by selling what they could.In 2008 and 2020 alike, investors moved back to gold in response to central banks’ massive monetary stimulus that reduced bond yields and raised the risk of inflation that would devalue other assets and currencies.
Now, central banks such as Russia’s are scaling back purchases as they strive to bolster their economies. “Disposable income is falling and gold prices are rising,” said Surendra Mehta, secretary at the India Bullion and Jewellers’ Association, predicting people would buy less or not at all.
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