The price of gold, like so many other assets, fluctuates based on supply and demand. Getting at what is the highest gold has ever been is the tip of the supply and demand iceberg. The prices to buy gold bullion bars fluctuate based on factors such as the mining industry's continued success to demand.
Demand is mostly influenced by two things jewellery and manufacturing. For years, investors buying gold and other precious metals have watched gold prices steadily increase. From capital gains benefits to the facts of gold price rises, precious metals continue to be highly attractive. On the 6th of September 2011 gold peaked at USD 1921.41. Due to constraints on demand, buying from dealers at that point would even involve a higher spot prices on gold and silver.
Investors have pumped money into precious metals when unconfident about traditional assets such as property, cash or stocks and shares. While the value of these investments are directly proportional to the overall state of the economy, precious metals are not.
Many people turn to gold when the economy is tanking that prices are seen as inversely proportional to the overall economy. Investors are commonly advised to dedicate a percentage of their portfolio towards a hedge against their other assets tanking. Our guide on how much gold you need in your portfolio could help you to decide what percentage that should for you.
Getting back to the point, in 2011, economic uncertainty primarily caused by the 2007-2010 US financial crisis spread to the rest of the world.
American real estate prices were sliding. Debt levels in some European countries, such as Greece, Ireland and Portugal, were also sparking fears. Effectively, there was a great deal of future economic uncertainty across the globe.
Meanwhile, demand for the precious metal in India and China, two of the world's largest gold consumers, are growing. Moreover, understanding why Russia is buying gold and why Germany is repatriating gold reveal international political fears. There is also speculation that the Indian government would convert more of its reserves into gold.
All of these factors play an strong role in long-term gold prices. And all of these can exaggerate existing economic concerns and the price of gold as they did in 2011. Note how it only took 3 months for gold to jump almost 10%.
At that time, investors predicted that gold would rise past USD 2,000. Were they wearing rose coloured glasses? Was this nothing more than a bubble? It appears to have turned out that way. As the economy improved, gold prices fall sharply, for a time.
Since then, stocks and property have offered friendly returns.
Over time, gold became an increasingly better buy. It effectively went on sale from USD 1,548 per ounce in May 2012, before a brief resurgence and an even bigger crash, to USD 1,245.90 per ounce in July 2013.
The best time to buy would have been January 2016 when it fell to USD 1078.40. Gold is now moving up to over USD 1,329 per ounce, at the time of writing.
Interestingly, Canadian gold owners benefited from the fact that gold acts as an economic hedge. As the Canadian dollar fell over 25%, gold prices are at nearly CAD 1,700!
An upward trend is clear, but it really depends who you ask. It’s impossible to accurately predict the future of financial markets, but some like lawyer and author Jim Rickards are predicting a USD 10,000 ounce. Looking at historical gold prices is just one way to gain clues at what will happen next. Gold investments have a lengthy history of sustained long-term growth. It’s kept pace with inflation remarkably accurately over the years.
The biggest factor that will contribute to gold surpassing its 2011 high is confidence (or a lack of it) in the economy. While it’s never healthy to bank on an economic collapse, you can bet that more investors will turn to gold at the slightest sign of one. Then, the value of the gold already held by investors will grow. Whether that ever happens remains to be seen. If you’re looking to invest, see our guide to the best websites for monitoring gold prices.
At Global Bullion, we buy all sorts of precious metal bullion through our sister store Muzeum, including gold and silver.