Invesco launched a gold ETC 15 years ago when $1,000/oz was the big barrier. So far this year, gold has been rallying aggressively and recently broke through $2,400/oz. How did we get here?
[Kathy] It’s been an interesting 15 years for gold. It’s important remember that gold has played an important role in the development of society throughout time. It was initially used for ceremonial rites, and later as a global currency and store of value.
Going back to 1971, the US left the Bretton Woods system, which was set up after WWII, fixing exchange rates between gold and the USD. This led to a surge in gold prices going from $40/oz to $660/oz by 1980. It was a time of severe economic uncertainty with stagflation in the US, high inflation, low economic growth and high unemployment.
After that, gold was stable for about 20 years. It really started to shine in the 2000s, with the impact of the Global Financial Crisis and subsequently, the Great Recession, when investors sought a flight to safety. From 2001 to 2012, gold went from $300/oz to $1,700/oz. These were turbulent times, with the European sovereign debt crisis also supporting gold prices.
Things started to normalise as the US Federal Reserve ceased its quantitative easing and the US dollar (USD) strengthened, bringing gold back down to $1,200/oz by late 2014.
Then, the Covid-19 pandemic of 2020 also impacted the gold market, with its unprecedented disruptions to every part of our lives and economies. Prices ultimately pushed higher than $2,000/oz. From then, until this recent upward move, gold stayed basically in a range of $1,700/oz – 1,900/oz.
What are the main drivers for the gold price today? We’ve seen the increased demand from central banks, do you think they’ll remain big buyers?
[Kathy] The major drivers behind gold hitting its historic high are Emerging Market Central Banks buying in a move to “de-dollarise” their reserves, and retail demand for physical bars and coins. The central banks increasing their gold holdings are China, Turkey, India, Poland, Kazakhstan, Singapore, Russia, and the Czech Republic. The freezing of Russia’s USD-based reserves after their invasion of Ukraine concerned central banks around the world, and according to the World Gold Council, their purchases of (gold) bullion doubled.