Gold price to highest level in six years

The Gold price has risen sharply this week, even hitting its highest level in nearly six years on Friday. The expectation that central banks will cut interest rates again caused a flight to precious metals. Equities and government bonds also benefited from the prospect of a looser monetary policy. The gold price rose to €40,000 per kilo on Friday, a level last seen in the spring of 2013. In dollar terms, the price rose to almost $1,400 per troy ounce, breaking through a number of key resistance levels.

The rise in the price of gold is taking place against the backdrop of rising geopolitical tensions between the United States and Iran. Nevertheless, the sharp rise in prices in recent days seems to be more the result of statements by central banks, because we also see predominantly green on the plates in other markets. The US S&P 500 index rose to record highs, while European bond prices also reached new records.

The silver price reacts less strongly to the developments of the last few days. Silver now costs about €435 per kilo, making it more than 90 times cheaper than gold. This ratio has not been as low as it is now in almost thirty years.

Gold price rises to highest level in six years (Source: Goldprice.org)

Central banks push gold prices higher

Earlier this week, both the ECB and the Federal Reserve signaled that they are willing to cut interest rates. This is a remarkable development, given that the US central bank was still planning to raise interest rates further at the end of last year. This trend reversal shows that the Fed still has doubts about the strength of the economy. The same goes for the ECB, which announced a new round of liquidity support for banks earlier this year. This shows that there is still uncertainty about the health of the European banking sector.

At the beginning of this year, we also saw a sharp rise in the price of gold, after the Federal Reserve announced that it would refrain from new interest rate hikes. After that, the price dropped back a bit. Whether that pattern will repeat itself depends on the actions of central banks in the coming months. If there is indeed an interest rate cut in the United States or in Europe, this could give a boost to the gold market. With a low interest rate on savings, it becomes more interesting to buy gold.

Geopolitical tensions

In the coming months, geopolitical tensions may also have an effect on the gold price. The latest developments regarding Iran are worrying, but we do not yet see any concrete indication of a further escalation. President Trump does not seem to have any intention of confrontation, while other people within the US government are pushing for a military intervention. We will continue to monitor these developments closely.

Valuations of stocks, bonds and real estate are also breaking records (Source: @charliebilello)