It’s been nearly five years since MoneyWeek started suggesting readers put a little cash in gold, so we’ve been thrilled at the progress the yellow metal has made in recent months.
Gold prices leapt to a 25-year high this week, hitting $544.40 an ounce as investors – both the likes of us and of market guru George Soros – began to worry that a US recession is on the horizon. And there is little reason to think that gold will fall back much any time soon. As David Prosser points out in The Independent, gold has long been seen as a “refuge” for those wanting to protect their cash in times of trouble and as an efficient long-term insurance against inflation (another thing we’re worried about).
But the bull in gold isn’t just about insurance. It’s about fundamentals too. For many years, the supply of gold has outstripped demand, something that has kept prices low, but over the last few years that balance has shifted. Thanks to years of under-investment in mining capacity, demand is outstripping supply, and the gap between the two is “steadily increasing”, says Prosser.
Not only have central banks from Russia to Germany indicated that they may at some point add to their gold reserves, but individual demand is strong too. In India, rising prices have barely dented demand for jewellery, and China’s massive and growing middle-classes are proving themselves to be keen gold bugs. Add it all up and it looks like “favourable supply and demand fundamentals will support the gold price in all currencies”, says Graham Birch of Merrill Lynch’s Gold & General fund.
Recommended further reading:
Visit our section on investing in gold for a full list of articles on the gold price, including what’s next for gold, and why gold will keep going higher.