Good times for gold buyers?

In August, gold hit a record high of US$2,069.29 per ounce oz – a rise of 28 per cent since January. But since then, the price of the yellow stuff has seen a steady decline, falling below $1900 by the end of September.

So has gold lost its momentum, as we head into the last quarter of this unprecedented year? Or should every savvy investor have this precious metal in their portfolios as we approach 2021?

Rise of ETFs

As always, the price of gold depends on what’s going on in the world. And gold went above $2,000 in August for one main reason: investors piling into gold exchange-traded funds (ETF) looking for somewhere safe in the face of worldwide economic crises.

These funds emerged in the early 2000s as an alternative to the uncertainty of trading futures or the hassle of actually storing the gold you’re buying. And this year, they’ve been buying big: a record 734 metric tons from January to June this year.

ETFs have become a much more attractive option than US Treasury bonds, which saw a massive drop in yields to below inflation. In March, they fell to 0.676% as investors abandoned stocks in the face of the massive economic disruption caused by the pandemic.

Buffett buys

Even Warren Buffett is getting in on the gold rush. He’s never been keen on gold as an investment, famously saying: “The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset.”

But this year, the so-called Sage of Omaha paid out $565m for around 21million shares in the world’s second-biggest gold miner, Barrick Gold.

Pandemic problems

The problems caused by the pandemic aren’t going away any time soon. While China appears to be getting back to normal at a rapid rate, and Australia and New Zealand are keeping cases low, countries such as the US and India are still seeing big rises.

Across Europe, France and Spain are experiencing second waves, while countries which escaped the worst of the pandemic first time around, such as Czechoslovakia, are now facing lockdown measures.

Recessions have hit all over the world, from Russia to Mexico to the UK to the US. Interest rates are at an all-time low, with some countries considering negative rates. Entire industries – such as travel and hospitality – are now under threat.

And bubbling under all the uncertainty of the pandemic, there’s the ever-present rumblings of trade wars between the US and China, plus the as-yet-unknown impact of Brexit – not to mention the small matter of the 2020 presidential election.

All rise

All this potential disruption means that gold is bound to rise again, Kelvin Tay, UBS Global Wealth Management’s regional chief investment officer, told CNBC. “We like gold, because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year,” he said.

“And gold has certain hedges to it. In (the) event of uncertainty over the U.S. election and the Covid-19 pandemic, gold is a very, very good hedge. And its recent weakness represents a great entry point for investors.”

At the moment, consumer demand for gold in countries where it’s highly prized, such as India, has hit an all-time low due to the impact of Covid-19. Buyers are holding off in an uncertain climate, preferring to save money to cushion the blow of recession.

But that pent-up demand is likely to start trickling through next year. “We see strong sentiment from safe haven investment purchases, especially in the case of a new Covid-19 outbreak, and as jewellery consumption recovers as consumers adjust to higher prices,” writes EILY ONG, equity and industry analyst for Bloomberg Intelligence.

Going up

There’s even talk of gold hitting $3,000 in 2021. That’s not from over-excited investors, either – it’s a prediction that the Bank of America made back in April 2020. The headline of that report pretty much sums up the reason why: ‘The Fed can’t print gold.’

So, whatever 2020 has left to throw at the world, it seems that for gold, the only way is up. As Rhona O’Connell, head of market analysis for Europe, the Middle East, Africa and Asia at StoneX Group told the Wall Street Journal: “Gold is a haven. It doesn’t have anyone else’s political or financial risk associated with it.”

Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.