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Updated 03:18 29/02/20

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3 reasons why gold is not trading at $2,000 an ounce

Duncan Richardson, News Editor
1 Sep 2016, 10:50 a.m.

The yellow metal has been one of the best performing asset classes in 2016, boosted by political uncertainty and ultra-low interest rates. Year-to-date the gold price is up over 24%, but still below the all-time high of $1,895 per ounce it reached in 2011. However, when adjusted for inflation, gold should be trading well over $2,000 per ounce.

Gold has always been bought as an insurance policy and, unlike a bond or deposit account, does not pay interest. A surging gold price usually means that traders are worried about the safety of traditional assets such as stocks and bonds.

The gold price should be higher when you consider the political fallout following Brexit and the uncertainty surrounding the outcome of November's U.S. election. According to investment house Macquarie there are three main reasons why the price has not yet reached $2,000 per ounce.

Gold is denominated in dollars

Gold is primarily priced in U.S dollars and the upward trend in the U.S. dollar since September 2011 is the main reason why the gold price has failed to breakout to new highs. During the last 5 years the British pound has lost 19% against dollar, the yen 25%, rupee 32%, South African rand 52% and the Australian dollar 29%.

Low demand for jewellery

Physical demand for gold jewellery is still strong but not as strong as it was.

Low base price

The most obvious reason is that between 2011 and 2015 the gold price fell over 45% to $1,050 per ounce.

View original source at: uk.businessinsider.com

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