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Back to the budget brink

Jul 18, 2019

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Gold prices are starting to rebound, but why?

Lewis Wallace May 12, 2016
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Gold prices are rising again.
PAUL J. RICHARDS/AFP/Getty Images

Several large gold miners release quarterly earnings reports Thursday, and the outlook is not too shabby. Gold prices went way up during the Great Recession, then dipped a couple years ago, and now they’re rising again.  

A report out Thursday from the World Gold Council, which represents mining interests, finds global demand is up 21 percent over the same time last year. The first quarter of 2016 was near a record high for demand, according to their research.

There are three main kinds of people who buy gold: the hobbyists, who want coins and jewelry; the doomsdayers, who are stockpiling it in case all other currencies collapse; and investors, who shoot to buy low, sell high.

“When people think everything is going to fall apart…gold benefits from what I consider a fear trade,” said Peter Hug, director of global trading for Kitco Metals and a regular commentator on gold pricing. He said things like the Brexit discussion, negative interest rates in some countries, and wacky election seasons make people rush toward gold.

“I mean, the whole world is unbalanced right now,” Hug said.

Some economists warn against looking to gold as a gauge for economic uncertainty, because prices are generally so volatile. Others argue over how closely the price of gold is linked to U.S. inflation (most say not that closely).

John Mulligan from the World Gold Council thinks investors have reacted to all the weirdness.

“It’s been a fairly remarkable quarter,” Mulligan said. “We saw a surge in demand from the investment community.” That surge more than made up for a down tick in customer gold purchases in India and China, two of the largest markets for jewelry. Mulligan said demand from central banks also went down, but has been fairly consistent in recent years.

Mulligan said mines aren’t likely to increase production in the short-term; they’d like to see those prices keep going up.

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