The price of gold has soared this year, nearly reaching the 2011 high, but remains a far cry from the all-time inflation-adjusted record in 1980.

For investors who bought gold pre-Covid-19, this metal’s profitability is shining brightly. Meanwhile, the picture turned grey for swing traders in August due to sharply falling prices. Soaring gold prices indicate a grim outlook amidst forecasts of a recession.

The world’s gold price rocketed from USD1,200 per ounce in early 2019 to an all-time record of USD2,073, then fell by USD113 as the session closed due to investors’ covering, and climbed to USD 1,930 in the next session. The domestic market was in sync with international fluctuations, when prices soared from VND35 million per tael to VND62 million, then dropped to VND47 million and rose to VND55 million.

History shows that gold has always been considered a safe haven for investors during crises or potential economic threats. The most commonly seen indicators are negative economic growth (deflation), high inflation or inflation risks, which cause a negative real interest rate in US bonds, or the weakening of the U.S. dollar.

The two most frequently asked questions are whether the gold price will continue to rise; and if so, how high. There is no absolute answer to these questions; however, the data and economic events can provide glimpses into future gold prices.

Still increasing?

Most investors and economic analysts assume there will be a further rise or no price drop by the end of 2021, as a result of ongoing negative factors that recently drove up the gold price.    

The Covid-19 pandemic has severely damaged the world economy. The latest Global Economic Prospects report from the World Bank forecasts a 5.2% contraction in global GDP in 2020, potentially making it the worst crisis since World War II.  

Losses due to the pandemic can only be halted, and the world economy set for recovery, once a vaccine or effective medications are available. Although both Russia and China have granted regulatory approval to their Covid-19 vaccines, some Western countries still question these inoculations as they have not been approved by WHO and FDA – a critical standard for the global distribution of a vaccine. Even when the vaccines show their effectiveness, it will take months to produce enough doses for worldwide consumption. Economic recovery is forecasted to be sluggish throughout the first half of 2021.

To deal with the situation, many countries are printing massive amounts of currency to support economic programs. In July, economic analysts reported that “the amount of currency bills printed in one Quarter of 2020 is more than that printed in recent years”! This mass money creation threatens to cause severe economic damage and inflation. US bonds have currently suffered from negative real interest rates for months.

Moreover, the trade battle between China and the United States, the two largest economies in the world, has never cooled down. The tension is even escalating prior to the US presidential election. Within the last half of August 2020, President Donald Trump even threatened to cut trade ties with China after targeting Chinese technology companies and increasing tariffs on most imports from China. In 2019, the gold price increased by some 18% due to fears of a trade war between these two countries.

Even if Donald Trump is not re-elected, normalizing trade relations between these two economies won’t be easy, since America’s elites have expressed a desire to restrain the Chinese economy for decades. The Democrats and Republicans may have different views on policy enforcement, but they often stand united on important strategies to protect the United States’ advantages.

To what heights?

In March 2020, some financial institutions, including Bank of America, predicted that the price of gold could reach USD3,000 per ounce within the upcoming 36 months. Witnessing another outbreak of Covid-19 in June and July, many other investment organizations predicted even higher price points. Domestically, the forecast of VND80 million per tael was mentioned by some investors, after the price passed VND60 million per tael.     

Several analyses in early August predicted that the price of gold will surge from between USD2,100 to USD3,000 per ounce. Past records and a gloomy economic outlook support these projections.

The record gold price of USD 1,921/oz in 2011 is actually equal to USD2,100/oz adjusted for inflation in 2020. Gold’s all-time inflation-adjusted high of USD850 in 1980 is equivalent to USD2,800/oz today. This means that to reach the all-time record, the spot gold price would need to increase by more than 40% from its current price.

Some international precious metals experts have predicted a high of USD2,400 by taking the average of USD2,100 and USD2,800. Optimists even assume that the record of USD2,800 could be surpassed due to robust buying by central banks and gold ETFs. According to the World Gold Council (WGC), by the end of July 2020, the gold ETFs recorded that the net buying of gold during the first eight consecutive months of 2020 had reached 899 tons, breaking the record of 646 tons in 2009.

However, the interest and anticipation of investors reveal the sad reality of their concerns about the existing economic recession and slow recovery. Predicting the bottom and top gold prices has always been a gamble for investors. Leading economies such as the U.S., Germany, and Japan have suffered from depressions. In particular, Japan’s year-on-year GDP has dropped by nearly 30%.

Even predictions released by reputable financial institutions always come with disclaimers.