Will the gold price go higher?

The price of gold has risen 27% this year and gold funds have returned up to 90%.

Richard Evans

Gold has had an incredible year. The price on the last trading day of 2009 stood at $1,085 an ounce; it has since risen to about $1,380, a rise of 27pc.

It has been higher still: the gold price struck its highest ever level of $1,421 on November 9.

There doesn’t seem to be much doubt about the cause of this bull market. All the analysts we spoke to agreed that “quantitative easing” – or printing money – by central banks had sparked fears over the value of paper currencies, spurring investors to switch to more tangible assets.

By acting as a trusted store of value in times of uncertainty, gold was reverting to its ancient role. In particular, investors were using it as a hedge against inflation.

“Gold’s rise this year has been driven by the big events in the global economy,” said Daniel Brebner of Deutsche Bank, who has had a successful year when it comes to predicting the gold price. “The first and second bouts of quantitative easing by America’s Federal Reserve changed investors’ perception of the value of the dollar and their expectations about inflation.”

He pointed out that, while the Fed’s actions had attracted the most attention, other central banks had worked to loosen monetary policy, encouraging inflation. “The European Central Bank has provided a trillion dollars of funding, while China has been boosting its money supply,” said Mr Brebner.

“All these actions have the same effect: they reduce faith in the value of money.”

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