How persistent will the gold price rally be?

News Arnulf Hinkel, financial journalist – 21.03.2019

Since the respective all-year lows of gold in US dollars in August and gold in euros in September 2018, the gold price has risen by almost 13 per cent in both currencies. Will this trend continue in 2019 or maybe even longer? Robert Halver, chief analyst of German Baader Bank and well-known among private investors, dealt with this very question in his recent article for the German financial news website Börse Online. In his eyes, the "interest rate policy turnaround" indicates a climate that will remain favourable for gold (especially since he believes that a restrictive interest rate and liquidity policy would be detrimental to the current global economy) while the unresolved geopolitical problems add to this. Most central banks have taken a similar view. In addition to these already widely known reasons, Halver points out other factors that support his expectation that the positive gold price performance will continue.

Gold severely undervalued in terms of inflation

Starting from the gold price in early 1980, Halver compared its performance with the general US price development . As a result, the inflation-adjusted gold price per ounce would today be US$2,115 instead of the current US$1,304. Halver therefore sees a significant catch-up potential for the gold price.

Long-term investors increasingly rediscover gold

It was not just speculators hoping for short-term gains that fired up the gold price rally at the end of 2018. Long-term investors also took advantage of the gold price lows in August and September 2018 to increase their physical gold holdings. This was reflected, among other things, by a 4 per cent y-o-y increase in net purchases of physical gold by the end of 2018. However, the most significant growth occurred in the gold holdings of central banks, with a rise of 74 per cent compared to the previous year. According to the World Gold Council, the last time central banks upgraded their gold reserves at a comparable level was 47 years ago. In addition, the rising demand for gold in India and China, expected by the World Gold Council in the coming years, also indicates a friendly gold price climate in the medium term.

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