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Sterling-denominated gold hits new records, as dollar price punches through the US$1,800 mark

Gold is traditionally used to hedge against inflation

Gold moves in close relation to the dollar

Gold soared past the US$1,800 mark for the first time in seven years on Wednesday, as wariness about rising coronavirus cases around the developed world combined with a weaker dollar. It also hit an all-time record in sterling terms, punching through the £1,430 mark.

Investors traditionally turn to gold as a safe place to park their money, especially when the world’s global reserve currency is showing signs of weakness.

Although much of the gain was erased the following day, the trend to a higher gold price is clear, as more and more new money is created to service higher and higher national debt levels. It is, of course, noteworthy that the last time gold was this high was at the apex of the previous round of quantitative easing, when the money printing presses were also rolling hard, and economic uncertainty abounded.

The markets in general have at times over the past few weeks shown some optimism that the world’s economies can get back on track as the coronavirus crisis continues to play out in different ways. In the UK and the US lockdowns have themselves mutated from national endeavours to much more local affairs, replete with the local politics that involves.

In general this bodes well for economic recovery, but unhelpful headlines continue to distort and disrupt the best laid plans of mice and men. For instance, the unintended consequence of establishing a much more efficient testing regime across broad parts of the US is that more coronavirus cases are being found, albeit that many of them are not severe. The severity though isn’t reflected in the case number headlines, or in the simple bar charts that are often presented as graphics.

That in turn leads to jumpiness in markets that lockdowns may return with renewed vigour, or that indeed the ongoing spread of coronavirus might turn out to be more deadly than it currently looks.

That’s all bullish for gold in the near-term, while in the longer term the spectre of inflation continues to stalk trading floors.

It’s interesting to note that in the weeks since the markets and gold both tanked in late March, both the FTSE100 and gold have recovered by something of the order of 20%, depending on where you take your price points.

Gold overall has performed better this year, up 16% year-to-date in dollar terms, and more in terms of sterling, while the FTSE100, by contrast, is down.

But with interest rates at all time lows around the world, the attractions of holding cash are minimal, so expect demand for equities and gold both to remain high. Expect higher prices too, and the corresponding inflation, to amplify the effect. For now gold is back below US$1,800, but don’t expect that state of affairs to last too long.

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