Gold has always been and still remains a reliable protective asset, a “safe haven” for savings. This is becoming especially evident today, when amid growing economic instability, the price of the yellow metal is steadily moving towards the record levels reached in 2011 (over $1,900 per ounce).
“It's not going to take a lot to drive gold higher and through those previous highs. Perhaps not this summer but certainly as we move into 2021,” said Richard Hayes, CEO of the Perth Mint, Australia's oldest working mint.
As of May 11, 2020, the price of an ounce of gold is $1,705.
In the chart: gold is steadily moving towards breaking the nine-year price record.
What is pushing the price of the precious metal up and what factors will help gold reach new records?
To understand this, the current economic situation must be reviewed first.
When will the debt bubble burst?
Today, world debt, representing the total debt of the population, business, financial institutions and governments of all countries, has reached alarming proportions. According to the Institute of International Finance, in 2019, world debt amounted to $255 trillion. That was before the world faced the coronavirus pandemic.
Now the situation may even worsen, as additional funds, which the state budgets are lacking, will be needed to overcome the consequences of the pandemic. So, this money will have to be printed. Unlike gold, the quantity of which is limited, currency can be produced in any required volume. However, this is fraught with inflation and an increase in the already huge world debt, which may lead to an unprecedented crisis in the near future.
“It is still unclear what impact the trillions of dollars being pumped into the global economy will have, especially when it comes to the value of fiat money*,” warns Richard Hayes, who was mentioned earlier.
What happens to gold?
The current situation raises many concerns, which, in turn, prompt us to think of gold as the foundation of Financial Security. In many parts of the world, there is a growing interest in the precious metal, which favorably affects its price.
The head of the Australian mint Perth Mint notes the phenomenal demand for investment gold, mainly from American clients. It is noteworthy that a recent poll conducted by the Gallup Institute shows that one in six Americans think that the yellow metal serves as the best long-term investment. There is a reason to believe that the citizens of the country that suffered the main blow of the previous crisis know what to rely on in hard times.
There is no need to wait for the economic storm to break out in full force. Far-sighted people are already preparing in advance for possible difficulties, taking measures to protect their savings: they use the centuries-proven value — gold.
*Fiat money — a currency without intrinsic value (not backed by precious metals), the nominal value of which is established and guaranteed only by the state.