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Why do the gold prices continue to move up?

Team Veye | 27 Jul 2020

Why do the gold prices continue to move up?

At this time when the Covid-19 pandemic has pushed the global economy into a contraction mode, why are the gold prices continuing its dream run. Why are the gold prices maintaining its upward momentum?

Normally gold prices rise whenever there are tensions globally. When the U.S. ordered China to close its Houston consulate, amid rising tensions between the two, it set a perfect stage for a further boost to its prices.

Gold in normal times is used as a hedge against inflation. It attracts flows when the economy is down and also amid falling interest rates. Its prices reflect the beliefs of commodity traders. 

Investors are buying gold not only as protection from an economic crisis. More investors are flocking to gold because of prevailing uncertainties elsewhere. Whenever stock markets, real estate and bond markets fall across the world, investors turn to gold to park their funds. The result, we are already at a nine year high price of gold.

There are already expectations of an additional round of fiscal stimulus. This could lead to further weakening of the dollar. And a weak dollar is supportive of commodities like gold and silver.

Another important factor contributing to its robust performance is its availability. The supply growth of gold has changed very little over time. It has increased by approximately 1.6 percent per year over the past twenty years.

Prices of gold are considered a barometer of our political and economic state. Gold has been established as an investment, a reserve asset and is highly liquid. It has historically preserved its value over time.

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