Analysts split over future of gold prices
Gold rush prospects are hanging in the balance writes Rachel Millard
Warren Buffett has long been sceptical about investing in gold. The investment king has expounded on its shortcomings (“neither of much use nor procreative”) and dismissed it as an asset for the fearful.
What motivates most gold bugs, he wrote in 2012, “is their belief that the ranks of the fearful will grow”. Well, fear came to 2020 in a big way — and Buffett, 90, wasn’t going to miss out. In August, his investment company Berkshire Hathaway took a £430m ($808m) stake in Canadian miner Barrick Gold.
Gold had reached an all-time high of $2075 ($2912) per troy ounce on August 6, as the turmoil of the pandemic and authorities’ response to it drove a major rally. In a chaotic year when oil prices and bond yields turned negative and stock markets gwent into freefall, gold has performed its traditional role as a safe-haven asset with aplomb.
The precious metal has been one of the best-performing assets worldwide — to the vindication of the legion of “gold bugs” who have long believed it would shine in a crisis. Can it do better in 2021?
“The strategic case for gold remains strong in our view,” say analysts at Goldman Sachs, who believe it could hit $2300.
“If I was to say the gold price is to rise close to infinity you would think, ‘Macleod is a lunatic’,” says Alasdair Macleod, head of research for Goldmoney, the Canada-listed precious metals custodian.
“If I was to suggest that the purchasing power of the pound or the dollar is likely to collapse to almost nothing you can then understand the argument better.”
With no yield of its own, gold is generally in stronger demand among investors when other assets, such as currencies or bonds, are weakening. It is also seen as a protection against inflation, and attracts a following among those who want to put investments out of the reach of governments and central banks. Gold was in a strong position coming into the year, having risen 19 per cent during 2019 to $1523 an ounce, supported by low interest rates in the US and central bank purchases.
As coronavirus started to spread, gold was at first caught up in the global sell-off, falling 10 per cent from February to early March.
But there was also a rush among retail investors,
“We’re selling as soon as we get stock on location in secure vaults,” Rob Halliday-Stein, founder of Birmingham’s Bullion by Post, told the Financial Times at the end of March.
As the scale of central banks’ efforts to prop up economies with quantitative easing and low interest rates became clear, investors poured into gold-backed exchange traded funds.
It helped offset lower demand from consumers in areas including India, China and Thailand and from central banks, with Russia suspending gold-buying, having stockpiled in recent years.
The price has since fallen back, to around $1,881 at the end of December, and experts are split over whether it will go back over $2000.