Investors around the world claimed they always knew it would always happen, but why now?

The price of gold is extremely volatile. This has been the case for almost fifty years, but it wasn’t always so. Historically, the price of gold was stable, sitting at $20.67 per ounce from more than 300 years ago until the 1930’s except a brief spike in the mid 1800’s. The mid 1970’s then saw a price explosion from around $40 per ounce up to $1,000 before the end of the decade.

Volatility ensued, and by the turn of the new millennium the price had fallen back under $300. We could be forgiven for thinking that stability would return to the gold market but nothing could be further from the truth.

In 2011 the value of gold shot up to a record $1,889.70. Before long the price settled around $1,250 until this year when we saw the record $2,070,60.

Turmoil

One point on which we can all agree is that geopolitical turmoil led to an increase in the value of gold during the last century. This seems to indicate that high gold prices are not what most of the population wants to see. 

A major part of this mechanism is the strength of the US dollar. The value of the greenback is intrinsically tied to the price of commodities. When times are hard and the dollar’s value is flagging somewhat, precious metals are seen as a safe haven for spare cash. 2020 is a clear example of that.

The Rise of Cryptocurrency

The future value of gold now has another important detail that wasn’t present only a decade ago. Cryptocurrency. During the fledgling years there wasn’t enough confidence that holding any amount of cryptocurrency would be safe. That has now clearly changed.

For now, the crypto markets are too volatile to be hanging onto cash that is stored as savings only looking to beat inflation.  But this too is expected to change.

Just think about the number of businesses that now accept payment in Bitcoin. You can’t walk into a restaurant and pay with gold nuggets but you can sometimes use Bitcoin. Even something as simple as paying for a taxi can now be taken care of using a cryptocurrency in many cases.

This all serves to reduce the demand for gold to some degree. In another generation this paradigm will have solidified even more. 

Our Verdict

The signs are all there that the price of gold could once again break the $2,000 barrier in the short to medium term, but not by a great extent. If, as expected, the COVID-19 vaccination program sets the world back on the right path then we might be waiting another decade at least before seeing another spike on the gold market.

In another generation or two we could well see a gold market devoid of young savers who have all moved onto the likes of cryptocurrency and whatever else is new at the time. Gold will maintain some value for many more years to come but the modern world looks likely to keep throwing up new commodities which will only make it tougher for precious metals in the future.