On Monday, July 27, the gold price surpassed the high of $ 1,921 per troy ounce reached on September 6, 2011. Gold was used as a means of payment and later as an investment for over 3,000 years, and served as a traditional safe haven, especially at a time when trust in fiat money is waning. In principle, gold is the ultimate inflation-linked investment vehicle. However, since it does not pay dividends, it has a zero coupon. Investors even have to factor in ongoing inventory costs, which over time diminishes potential returns. The demand for gold mainly depends on three factors:
1. Financial market and / or economic uncertainty:
The measures taken after the appearance of the corona virus have led to great economic uncertainty and volatility in the financial markets.
2. Weak dollar:
With the appearance of the corona virus, the trade-weighted US dollar initially rose, but has lost strength since the beginning of the second quarter. This makes the price of gold in other currencies more attractive and supports the value of the commodity.
3. Negative real interest rate:
The real interest rate of the US Treasury is now negative for all terms and has shifted further into the negative range. This allows gold as a carry-inflation-protected asset to compete with inflation-linked US bonds.
As long as all of these factors persist, the gold price can continue to benefit from increasing investor interest and reach new highs.