Gold has suffered a nasty correction, falling by around 20% in dollar terms. But the uptrend that began in 2001 – since when gold has risen almost sevenfold – isn’t over yet. As in 2008 during the Lehman panic, gold’s slide is due to investors desperately seeking liquid assets to sell to cover their positions, and assets don’t come much more liquid than gold. But gold soon bounced back after that decline, and it is likely to be a similar story this time.
“Long-term, gold tends to fall when other investments – shares, bonds, even cash – offer a better opportunity…It’s hard to see this drop as the end of gold’s ten-year bull market because everything else looks just as bad today” as before gold’s correction, says Adrian Ash of Bullionvault.com. With the global economy sputtering, central banks are “under tremendous pressure to print”, says Tim Price of PFP Wealth Management. Real interest rates also remain negative. That will fuel fears of a long-term rise in inflation and make gold, which has maintained its value for thousands of years, more appealing.
The spectre of bankruptcies in the eurozone is another reason to hold gold. Unlike other assets, its value doesn’t depend “on the credit-worthiness of any government or financial institution”, says Julian Jessop of Capital Economics. That “may yet prove very significant”.