Graphic: Buy gold's pullback?
Significant economic changes in 2020 have had a profound impact on the price of gold, which reached a new high of $2,063.54 this year. Gold drew significant attention of many market commentators and investors as it approached and then passed the psychologically important level of $2,000 per troy ounce. With real interest rates low for the foreseeable future, one wonders whether now is a great time for institutional investors to diversify their portfolios directly with gold.
Going up: Driven by a very uncertain global economic and health-care environment, the price of gold rose more than 20% year-to-date. More importantly, the average price this year would — if the price holds — represent a new all-time average high.
Wide appeal: Total investments in gold ETFs are now more than $100 billion. In terms of demand, net speculative positions in U.S.-based futures contracts are also positive, but off their 2020 highs. Central bank buying has slowed, while demand for physical bars and coins has surged.
In the news: Gold hit an all-time high in August. Prior to that, news articles on the SPDR Gold Trust — the largest gold ETF — spiked. With the buzz subsiding, demand seems to have lessened and the price fell.
Glittery outlook? Negative interest rates and almost limitless central bank easing give gold a strong tail wind. Projections in the U.S. point to at least several more years of negative real interest rates. Even if pandemic concerns subside in 2021, there are other geopolitical issues that could impact gold's price.
*London Bullion Market Association. Source: Bloomberg LP
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