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Macroscope | Why investor faith in gold remains strong in these troubled times
The gold price coming adrift from traditional anchors points to deep uncertainty about the world and concern for the global monetary system
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What is the sharp and sustained rise in the price of gold telling us about the state of the global economy and finances, and why are central banks in Asia and elsewhere adding to their gold reserves? The answer seems to be concerns that there could be severe turbulence ahead.
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The price of the precious metal has surged, to the point where the value of a single ounce has exceeded a record US$2,500 on some days in recent weeks. Meanwhile, the cost of a 400-ounce gold bar has reached US$1 million for the first time.
For those who maintain that cryptocurrencies – bitcoin especially – represent the way of the future, gold’s price performance during the past couple of years might appear to be an anachronism, a triumph of superstition over intellect. However, the price surge reflects present reality rather than some imagined brave new world.
What investment bank JP Morgan has termed “gold’s blistering rally” this year alone has seen the precious metal’s relationship with other assets such as the US dollar and interest rates break down. This is significant with regard to how the price is likely to move from here on.
The fact that the gold price has apparently come adrift from traditional anchors or benchmarks points not only to deep uncertainty on the part of central banks and investors about the state of the world but also to growing concerns over the condition of the global monetary system.
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This is hardly surprising. Rarely has there been such a conjunction of threats to global physical, economic and financial security as faces us now, with Russia’s invasion of Ukraine, Israel’s war in Gaza, potential conflict over Taiwan, political divisions, stock market instability, climate change and so on.
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