Gold shoots above $1,800 for first time since 2011

Gold prices rose to more than $1,800 an ounce on Wednesday for the first time in nine years as data showed investors had stashed a record $40bn of cash into funds backed by the precious metal during the first half of the year.

The commodity, widely favoured by investors as a store of value in times of stress, breached $1,810 during afternoon trading in London, with a gain of more than 1 per cent on the day.

Gold has risen about 19 per cent so far this year, cementing its position as one of the best performing major asset classes of 2020 as investors have looked for safe places to park their cash at a time of heightened uncertainty for the global economy due to the Covid-19 crisis.

James Steel, chief precious metals analyst at HSBC, one of the world’s biggest bullion banks, said prices “were already rallying well before the emergence of Covid-19”, which has further added to their momentum. 

Net inflows into gold-backed exchange traded funds hit $5.6bn (or 104 tonnes) in June, taking global holdings to a new all-time high of 3,621 tonnes, worth more than $200bn, according to data published by the World Gold Council this week.

Overall net inflows in the first half of the year came in at almost $40bn (or 734 tonnes), surpassing the highest level of annual inflows, both in tonnage terms (646 tonnes in 2009) and US-dollar value ($23bn in 2016), according to the WGC.

This has helped offset a collapse in jewellery demand, which HSBC reckons could be down by a fifth this year, and an increase in recycling. “Investment demand is doing a lot of heavy lifting at the moment and needs to continue for gold to prosper,” said John Reade, chief market strategist at the WGC.

Like other asset classes, gold was hit hard in March as investors rushed to liquefy their investments when the scale of the Covid crisis became clear. Since then, governments and central banks across the world have unleashed huge fiscal and monetary support packages, driving down yields on other safe assets, with some US Treasuries in effect paying investors a negative return. That has undermined one reason not to buy gold: that it provides no income.

More recently, the metal has benefited from nervous investors hedging their exposure to riskier assets after a rise in new Covid infections in the US.

“Fears of further increases in infections and related lockdown fears have been driving demand and thus prices,” said Carsten Menke of Swiss bank Julius Baer. “This suggests that short-term price risks remain skewed to the upside as long as the virus does not come under control.”

Net inflows into gold-backed exchange traded funds soar

Gold’s strong run has turbocharged the performance of big producers, which can enjoy rising prices without an accompanying increase in costs. The NYSE Arca Gold Miners index is up 28 per cent so far this year.

“We expect a strong interim reporting period,” said Numis analyst Justin Chan, who is forecasting a 79 per cent year-on-year jump in earnings from the gold producers he follows.

The key question investors are now asking themselves is whether gold will surpass its 2011 record high of slightly more than $1,900.

“The health, financial and economic uncertainties generated by the Covid-19 pandemic and its aftermath are likely to continue to support gold’s rally well into 2021, but at a reduced level, we believe,” said HSBC’s Mr Steel.

He thinks prices could reach $1,845 by the end of this year before falling back to $1,705 in 2021.

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