This note looks at the surge in the gold price to a record high.
The key points are as follows:
– The rise in the gold price is being driven by a combination of factors including: worries about inflation and the outlook for paper currencies, central bank buying, and a fall in the opportunity cost of holding gold. Interestingly, while the price of gold is at a record high in nominal terms it is still below its 1980 high of US$2,318 an ounce in today’s prices.
– While there is a risk of a short-term correction in the gold price, more upside is likely over the medium term.
– However, given gold’s highly speculative nature, a better approach for investors would be to consider a broad commodity exposure as opposed to a singular focus on gold.