Prices are up 27 percent this year, as the Fed’s policies drive investors to hold more gold.
Something shiny and bright is beckoning investors accustomed to the gloomy days of 2020: gold.
In recent days, gold prices have hit record highs. For the year, gold is up 27 percent, a performance that puts it ahead of most stock, bond and commodity markets.
On Monday, the price of gold futures on the New York Mercantile Exchange rose 1.8 percent to more than $1,931 an ounce. Investors last week had already pushed gold prices past the record last set in August 2011.
Gold might seem out of date in a modern investing portfolio, but several developments — all tied to the coronavirus — have banded together to juice demand.
The pandemic has pushed the global economy into one of the sharpest downturns on record. The International Monetary Fund predicts that this year, the world economy will shrink by nearly 5 percent. The plunge prompted central banks everywhere, most importantly the Federal Reserve, to pump hundreds of billions of dollars into financial markets, with the goal of propping up flailing economies.
But those billions aren’t coming from a storehouse; rather, central banks are creating fresh currency. The increase in money supply lowers interest rates and raises the amount of a particular currency, such as the dollar, in circulation. And over time, these moves can both increase inflation (lower interest rates typically spur economic activity) and weaken the value of a currency.
By Matt Phillips, Jul 27, 2020, at 06:58 p.m.