- In August, the price of an ounce of gold surpassed the $ 2,000 mark, breaking a previous record set in 2011.
- In a context of negative interest rates and uncertainties linked to the economic crisis, investors and even individuals are betting on gold. Its value is increasing, in a context of prudence and pessimism, especially since the current health situation is slowing down the recovery of the economy.
- However, betting on a rise in gold can turn out to be, in absolute terms, a bad calculation.
Is it "the gold" ... to do good business? At the beginning of August, the price of an ounce of our dear precious metal exceeded the symbolic bar of 2,000 dollars, appreciating by more than 30% since the beginning of the year. A record since 2011. In the context of the pandemic, specialist shops are logically seeing an influx of individuals needing quick cash or those who, conversely, want to buy it, betting on future capital gain.
"The price of gold is beating records, and it is not over," announces economist Philippe Herlin on a site specializing in gold trading. The forecasts are racing: $ 2,100 by the end of September, according to UBS, ditto for JP Morgan, 2,300 according to Goldman Sachs or even 3,000 according to Bank of America at the end of 2021, as reported by Business Insider . Note that the price of silver is also soaring.
A cocktail of factors
Many factors explain the take-off in the value of gold and the interest shown in it by investors (banks, insurance, investment funds). The trend was already on the rise before the onset of the crisis. Through the central banks' policy of lowering interest rates, public debts are issued at negative rates. A safe investment for investors, but then without any return, which increases the attraction for gold.
That's not all. The trade war that broke out in 2018 between China and the United States also pushed prices up. Another element: doubts about gold production in the coming years, which could reach its limits due to lack of new deposits. Added to this is the economic crisis caused by the pandemic.
As the price of the precious metal is denominated in the US currency, a decline in the greenback makes gold cheaper for buyers with other currencies. “Gold rose due to mistrust of the dollar. Those who had assets denominated in this currency sold them to buy gold, ”explains Philippe Crevel, director of the savings circle.
Investor caution
Interest in gold more generally reflects mistrust of economic policies. “When investors rush into gold, there is a loss of confidence in the action being taken by central banks. If we inject money each time, we print change, who reimburses? The only tangible value is this precious material, ”explains economist Stéphanie Villers.
In such a context, banks, insurance companies and investment funds are playing cautious. The demand for gold-backed investment funds (ETFs) has exploded. “There is a kind of misunderstanding between economic reality and stock prices which are starting to rise again. If we are cautious, we say to ourselves that they have increased enough, and that we have to look for other growth poles, which are not in the real economy, ”she adds.
"End of the world" logic
The gold price is therefore also fueled by a certain pessimism. "If, tomorrow, there is very bad news, a major economic problem, the price will go up," continues Philippe Crevel. Small savers can be tempted by such an investment because they fear value for their money. “There is an element of irrationality. The state is going into debt, there are anxiety-provoking messages. People are afraid of bank failures, of insurance companies, or of the government using it in their current accounts. There is a logic of the end of the world ”, according to this specialist in savings and retirement.
Logically, while the economic situation is still uncertain due to the virus and the shadow of second waves, it is still possible to do business. "As long as there is no visibility on the recovery, there will be no collapse in the price of gold," said Stéphanie Villers. However, it warns against such logic which sends a "very bad signal of loss of confidence in the financial system".
Dropping out of lessons is still possible
For Philippe Crevel, other arguments invite to relativize the interest of a gold rush. “You should never follow the pack, but precede it. Today, buying gold is already buying it very expensive, ”he emphasizes, recalling that its usual value has roughly been around 1,200 dollars an ounce over the past thirty years. In the long run, stocks like real estate pay more than gold, he argues.
The risk of a drop in prices, too, cannot be ruled out, he reminds the attention of those who hope for rapid capital gains. “Investors lowered their dollar positions and, in the meantime, bought gold. But it is possible that they will sell it very quickly, ”continues Philippe Crevel. The price of gold is likely to decline if the economic situation recovers. “In 2013, the Greek crisis was resolved and there was more gold on the market,” he recalls. In the event of a recovery, investors will also return to their traditional investments, which are more profitable than an investment in gold which does not pay dividends.
Another possible scenario that could lead to a decline: a big storm in the financial markets. In a note published in May 2012, the Directorate General of the Treasury recalled this. “In times of extreme stress, stock returns and gold returns are positively correlated, no doubt due to the need for investors to liquidate some of their gold positions to cover losses on gold. other asset classes ”, we can read. This is what happened at the beginning of March: the price of gold suddenly dropped, before rising again.
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