Gold price predictions for 2020 and beyond

Gold has always held a special place in our hearts, but should it also have a place in our portfolios? We look at where gold prices are heading in 2020

Throughout history, gold has been seen as a valuable commodity. We’ve traded with it, worn it, used it and saved it. Its intrinsic value dates back over 6,000 years when early transactions were carried out with pieces of the precious metal. Gold artefacts have been found in the Varna Necropolis in Bulgaria and the Sakdrisi site in Georgia, that dates to the 3rd of 4th millennium BC, could be the world’s oldest gold mine.

India and gold

Today, 52 per cent of gold production is for jewellery, with India alone accounting for 25 per cent of the total physical demand worldwide. Gold in India is seen not just as an adornment but an investment, with most consumers believing it a safe asset that protects them against volatility and uncertainty.

When the demand for gold jewellery increases around the traditional festive and wedding seasons, the price of gold rallies. When inflation rises and the value of currency goes down, consumers prefer to hold on to money in the form of gold.

Weather-dependent demand for gold

India consumes 800-850 tonnes of gold each year, with 60 per cent bought by people in rural areas. If farmers make a lot of money from a successful year, they buy gold to create assets. Should the crops fail, they sell to generate capital. As the June-September monsoon delivers 70 per cent of the country’s annual rainfall and dictates whether or not crops succeed, the monsoon affects demand for gold. How climate change will affect this delicate balance is yet to be understood.

Electronics demand for gold

Gold is also an excellent thermal and electrical conductor; malleable and non-corroding, making it vital to the electronics industry, which accounts for about 9 per cent of global demand. Most electrical devices contain a small amount of gold, with each of the 1bn mobile phones produced globally each year containing around 50 cents (35 pence) worth (although this is rarely recovered and recycled).

Gold is also used in conducting plastics, catalysts and dentistry and when demand is high, the price goes up.

Gold as a safe haven?

Gold is still considered by many to be a safe haven, an investment that will retain or increase its value in turbulent times. Following the September 11 attacks and the 2008 financial crash, investors flocked to the precious metal as confidence in the US dollar and some assets classes became shaky.

Suddenly, gold bullion started attracting new players, such as hedge funds, that had previously considered the metal a relic. By 2011, prices had rocketed to $1,900 an ounce and demand for gold coins, such as South Africa’s Krugerrand, was so strong that dealers around the world ran out of stock. However, this wasn't to last, with gold prices losing 30 per cent by 2013.

In 2019, many experts see gold as a good diversifier as the price tends to move in a different direction to other assets such as equities.

However, as gold was “de-monetised” in 1973, when the US government formally abandoned the Gold Standard, some believe that since then it can no longer really be considered a safe haven. Indeed, many now view it as a hedge against inflation as it is not affected by the CPI and an insurance policy against global volatility.

Gold's performance in 2019

So far, 2019 has proved positive for gold which, despite ups and downs, rose by 10 per cent in the first half of the year. The spot price at which it can be bought and sold right now is currently $1,469 (£1,143) per ounce. This is down slightly from September’s six-year-high of $1,548 but the upward trend seems well supported.

What determines the spot gold price?

Spot gold prices are affected by the laws of supply and demand. If buyers are trying to buy gold, sellers may lift prices to make buyers bid higher. If plenty of sellers are available, buyers may bid lower, forcing the price down.

Gold Futures

Futures contracts provide a hedge against price changes. Companies that need to purchase gold in high volumes can take out a futures contract with a gold producer, settling the price payable for a set weight on a set date in the future that must be paid, irrespective of whether prices on the open market have risen or fallen.

The commodity spot price of gold is an average of the estimated future price of gold, based on traded futures contracts for the nearest month. The futures markets are the fastest to react to financial movements and can rapidly build them into the price of gold. By analysing the advanced investor commitment to gold, we can see how strong sentiment is, helping the various bodies that set the price ensure demand is maintained and keep gold trading.

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What has affected the price of gold?

The gold price is affected by many global influences. Geo-political tensions between the US and Iran and the trade war between China and the US are just two factors that have affected the global economy recently. Banks in New Zealand, India and Thailand have cut interest rates to protect themselves.

The US, which has already had three interest rate cuts this year, could be in line for more, which would weaken the dollar. As gold is valued in this currency, the price of gold could rise.

Closer to home, Germany has narrowly avoided going into recession and Brexit is looming. If the UK and EU cannot agree a deal the pound could weaken, pushing up the price of gold. A ‘hard Brexit’ could also hit the pound if the British economy slows. Again this would cause gold to rise in price. In the unlikely event of Brexit being aborted, we would be likely to see business as usual and demand for gold linked again to the strength of the dollar – or indeed the pound could strengthen and the price of gold go down.

Gold price prediction

Gold is cyclical and plunged to a low of $250 per ounce in 2001. However, since then it seems to be rising. Some believe this upward cycle could last 30 years,and could have another 11 years to run.

Gold price future prediction 2020

As for the forecast for 2020, many analysts believe the trend will continue and predict a price of $1,500 per ounce by the end of 2019. Analysts at TD Securities reckon we could see $1,600, while analysts at Goldman Sachs have even predicted $1,650 or higher.

Canadian businessman and mining financier Frank Giustra strongly believes we should all hold gold as part of our portfolios. Not only does he see it as a form of insurance in the current tumultuous global climate, he also believes that as interest rates are being lowered in many countries, this could be the start of a gold run.

Gold prediction 2020

Giustra’s gold price prediction for 2020 remains firmly bullish, reckoning it could “blow through $1,900” and even higher. He also believes that investing in mid-sized gold companies means you will benefit from the rising price of gold as well as the growing business – although his role as chairman of Leagold Mining (LMC:TSX) a Latin American gold producer, may partially account for his enthusiasm.

“The magical metal was no match for American mettle”

Not everyone is such a believer. In his annual letter to investors this year, American business magnate Warren Buffet noted that the US national debt has been steadily increasing over the past 77 years. If investors, to “protect” themselves had chosen to buy gold, they could have ended up with an asset worth less than 1 per cent of a simple unmanaged investment in an American business.

Gold price forecast for next 5 years

Former Federal Reserve chairman Ben Bernanke once famously told Congress:“Nobody really understands gold prices, and I don’t pretend to really understand them either.”

Gold has been showing a rising tendency and the gold price forecast 2020 looks promising. Many believe it is still a safe haven. As for a five-year forecast, numerous analysts have used algorithms that seem to foresee a continuation in the trend, predicting gold could even reach $6,000 per ounce in 2024. But with today’s uncertain political situations and climate change’s unpredictable effect, can we really make predictions over such a time period?

One thing’s certain; with an estimated 54,000 tons yet to be mined and 3,100 tons produced each year, we need to look after this commodity because it won’t last forever.

FURTHER READING: Gold investor sentiment rises for fourth consecutive month

FURTHER READING: Western Australia provides $4.93m funding package for gold exploration

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