KEY POINTS

  • Gold prices have rallied by 32% year to date
  • Many gold investors get exposure to gold through gold-backed exchange trade funds
  • Gold may continue to climb in price if bond yields keep tumbling.

The price of gold on Tuesday touched and surpassed $2,000 per ounce for the first time in history.

Gold has been one of the top-performing asset classes this year, jumping by 32% year to date due to a weak dollar, low bond yields, low interest rates, worries over a global economy wracked by the fallout from the CXOVID-19 pandemic and the long-term impact of trillions of dollars of stimulus programs by central banks.

Many gold investors get exposure to gold through gold-backed exchange trade funds. The World Gold Council said that last month these ETFs received $7.4 billion in cash, in addition to the record $40 billion they amassed in the first half of 2020.

Jim Luke, a fund manager at Schroders, said gold may continue to climb in price if bond yields keep tumbling.

“We’re in a world where inflation will move above targets and real rates will be significantly lower than now,” he told the Financial Times. “What’s drawing investors to gold now is not faith in gold itself, it’s much more a lack of faith in other things -- central banks, governments and, in particular, a lack of faith in the availability of real returns elsewhere. Gold is the inverse of that.”

Indeed, the 10-year U.S. government bond now yields only about 0.5%.

Bank of America said gold could surge to $3,000 an ounce in the next 18 months.

“The global pandemic is providing a sustained boost to gold due to increased savings, growing inequality, vast capital destruction, declining productivity, rising public debt levels, and, most importantly, falling equilibrium real interest rates,” wrote strategists at Bank of America.

However, gold remains under-owned relative to stocks.

“We still see ample scope for traders to consider increasing their gold holdings,” Bank of America strategists said.

However, taking into account inflation, gold is not an all-time high. Fahad Kamal, chief market strategist at Kleinwort Hambros, said “when you factor in inflation, the all-time high of gold is about $2,500 . . . when Soviet tanks rolled into Afghanistan in 1979.”

Another stimulus package could also help boost gold prices by supplying more liquidity into markets and pushing interest rates and yields even lower.