L’or s’envole vers les sommets

By Ibrahima BALDE on Nov 03 in Actualités.

Highest price for gold: Historical gold price action

Gold hit US$2,067.15, the highest price for gold at the time of this writing, on August 7, 2020.

Gold’s breach of the significant US$2,000 price level in mid-2020 was undoubtedly due in large part to economic uncertainty caused by the sweeping COVID-19 pandemic.

To break through that barrier and reach that record high, the yellow metal added more than US$500, or 32 percent, to its value in the first eight months of 2020.

Despite this recent run up, the gold price has seen its share of both peaks and troughs over the last decade. Rising as high as US$1,920 per ounce in late 2011, the price of gold took a deep dive half way through 2013, dropping to about US$1,220. The gold price then remained between US$1,100 and US$1,300 from 2014 to early 2019 — but in the second half of that year, a softer US dollar, rising geopolitical issues and a slowdown in economic growth pushed gold above US$1,500.

gold price chart, 2010 to mid-2021

Gold price chart via Kitco.

Compared to 2020, gold’s price performance in 2021 has been a letdown for many market watchers who were hoping to see further gains. Gold’s failure to do so has surprised investors and commentators alike.

When will gold once again return to its upward trajectory? Only time will tell, but veteran investor Rick Rule, who recently retired from Sprott (TSX:SII,NYSE:SII), views such downturns in the gold market as an opportunity, not a cause for concern, as conditions are ripe for the gold price to push higher.

“I think now that a recovery in the gold price occurs sooner rather than later,” he told the Investing News Network (INN). “I’m always fond of saying that I like things that are inevitable, but might not be imminent — I’m beginning to think that an upward move in the gold price is imminent too as a consequence of the expansion of the negative margin on the US 10 year Treasury.”

Gareth Soloway, chief market strategist at InTheMoneyStocks.com, has advised investors not to get caught up in short-term factors moving the gold price.

“If you’re a long-term gold investor, you just have to continue to look at the facts, which are (that) the money printing is continuing, China continues to go on this path of the digital yuan — they want the digital yuan to be the new global reserve currency, which will ultimately cause downward pressure on the dollar — that’s also inflationary and good for gold,” Soloway told INN. “So all of these factors that are going to play out over the next two, five, 10 years will and should drive up gold’s price.”

Like other metals, the gold spot price can also be influenced by supply and demand dynamics.

China and India are the biggest buyers of physical gold, and are in a perpetual prize fight for the title of world’s largest gold consumer. That said, central bank buying is rebounding after dropping to a decade low in 2020 during the COVID-19 pandemic. In 2019, central banks were net buyers of gold for the 10th year in a row. There are expectations by central bank watchers that net gold buying is likely to bounce back to previous levels over the next few years.

Higher investment demand for gold often translates into higher demand for gold-based mutual funds and gold-mining stocks.

The gold price is also being supported by interest rate cuts, which the US Federal Reserve began implementing in mid-2019 for the first time since 2008. While the gold price initially declined following the announcement, the Fed’s rate cuts have been very supportive of gold prices.

In terms of supply, in 2020, the world’s five top gold producers were China, Australia, Russia, the US and Canada. The general consensus in the gold market is that major miners have not spent enough money on gold exploration in recent years. Gold mine production has been flat for the last five years, at around 3,200 to 3,300 metric tons each year.

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Highest price for gold: Beware gold price manipulation

As a final note on the price of gold and buying gold bullion, it’s important for investors to be aware that manipulation of gold bullion prices is a hot topic in the industry.

In 2011, the last time the price of gold broke a record high, the price of gold dropped swiftly in just a few short years. This price decline after three years of impressive gains led many in the gold sector to cry foul and point to price manipulation. Early in 2015, 10 banks were hit in a US probe on precious metals manipulation. Evidence provided by Deutsche Bank (NYSE:DB) showed “smoking gun” proof that UBS Group (NYSE:UBS), HSBC Holdings (NYSE:HSBC), the Bank of Nova Scotia (NYSE:BNS) and other firms were involved in rigging gold and silver rates in the market from 2007 to 2013.

Not long after, the long-running London gold fix was replaced by the LBMA gold price in a bid to increase gold price transparency. The twice-a-day process, operated by the ICE Benchmark Administration, still involves a variety of banks collaborating to set the gold price, but the system is now electronic.

Still, the issue of price manipulation has by no means been solved, as a 2020 fine on JPMorgan (NYSE:JPM) shows. More recently, chat logs were released in a spoofing trial for two former precious metals traders from the Bank of America’s (NYSE:BAC) Merrill Lynch unit. The logs show one of the traders bragging about how easy it is to manipulate the price of gold.

The world’s gold market participants have consistently spoken out about manipulation, particularly as gold came to a new high. In mid-2020, Chris Marcus, founder of Arcadia Economics and author of the book “The Big Silver Short,” said that when gold fell back below the US$2,000 mark after hitting close to US$2,070, he saw similarities to what happened with the gold price in 2011.

Marcus has been following the gold and silver markets with a focus specifically on price manipulation for nearly a decade. His advice to precious metals investors? “Trust your gut. I believe we’re witnessing the ultimate ’emperor’s really naked’ moment. This isn’t complex financial analysis. Sometimes I think of it as the greatest hypnotic thought experiment in history.”

Ibrahima BALDE