Gold prices have reached a seven-year high in 2020. With a global uncertainty and geopolitical tensions, the killing of Iranian military commander Qasem Soleimani at the start of 2020 has only fostered the trend.
Moreover, banks negative rates and a global slowdown have encouraged traders to invest in the precious metal. As a matter of fact, the value of the precious yellow metal has increased by 21.25% in euros and by 18.83% in dollars. This is the largest increase since 2010.
According to Goldman Sachs, gold prices should go up and reach a $1,600 per troy ounce (toz) in the next few months.
Interest rates were impactful
As shares reached new records in 2019 so did gold, heavily influenced by interest rates. “What really determines the gold price is typically real interest rates and Fed funds interest rate expectations”, confirmed Longview Economics CEO Chris Watling to CNBC. The U.S central bank cut its rates three times last year.
If gold can do this well when the dollar is rising, imagine what it’s going to do when the dollar starts falling. I think the dollar’s going through the floor which means the price of gold is going through the roof.” https://t.co/XWTI8VVi1L
— Peter Schiff (@PeterSchiff) January 13, 2020
As the financial media reviews, “U.S. Federal Reserve has halted its cutting cycle, keeping its benchmark overnight lending rate in a range between 1.5% and 1.75% in December and projecting no moves in 2020.”
2019 it is the second best year for gold since 2010 and the fourth best year since 2000, after 2005, 2010 and 2009.
An influential global geopolitical situation
In Europe, gold has also increased in value. According to the French institute Comptoir national de l’Or “since the beginning of the century, ie over the past 20 years, the price of gold in euros has multiplied by 4.7, representing a performance of 8.04% by year”.
In comparison, “Paris index CAC40’s shares only rose 0.02% per year,” highlighted the institute in a press statement published last week.
Russia was the biggest gold buyer
On top of reaching new high for the price of an ounce gold bars have also exponentially increased in value. While final yearly numbers are not available yet, it is already confirmed that net purchases of gold bars by central banks surpassed 650 tonnes in 2019.
Biggest purchaser was the Russian central bank with 148.5 tonnes confirmed at the end of October 2019, the Polish central bank with 100 tonnes, its Chinese counterpart with 95.8 tonnes and thirdly Turkey with 76.8 tonnes.
"According to my estimates, there are currently 20,398 metric tonnes owned by the private sector in China. The People’s Bank of China (PBoC) holds 1,948 tonnes, bringing the total to 22,346 tonnes. Up 230% from 2009."
— Sebastian Sienkiewicz (@Amdalleq) January 16, 2020
According to French expert Laurent Schwartz, there are two reasons for these purchases: “The diversification of the reserves of these banks outside the dollar, in particular for countries in conflict with the United States such as Russia, China, Turkey and Qatar. These territories are also aiming to assert their economic sovereignties, as is the case for the countries of Eastern Europe”.
He also added that the upcoming international geopolitical situation will play a key role for gold prices this year – including Brexit and the U.S presidential elections.