The price of the gold chart had risen to its third peak these days. In 1971, the so-called Bretton Woods exchange rate system was abandoned. Also the peg of the US dollar to gold. The first of the peaks occurred in 1980, and the second nine years ago.

Price of the gold chart

If inflation is taken into account, the price of gold in 1980 was still about a third higher than today. In real terms, therefore, no record is being set yet. Gold rose to its record dollar price in nominal terms this morning. A precious metal contract with an immediate delivery date sold for nearly $1,945 per troy ounce. However, this amount has less purchasing power than the sum of $850 in January 1980. That’s how much a troy ounce of gold cost then. The quantity of $850 in 1980 corresponds to roughly the sum of $2,660 in 2020. An ounce of gold has to rise by another more than $715. Then we can talk about a record dollar price not only nominal but also real.

price of gold chart

Actual Interest Rate

The question is whether gold still has the “power” to raise the price of another more than $700. The key driver of its current price of gold chart growth is the decline in real interest rates. These are the rates that take into account inflation, respectively, inflation expectations. The real interest rate on a ten-year US government bond is at a record low right now, at -0.93%. The lower the actual interest rates, the more attractive the gold is under otherwise identical conditions. It bears no interest; when real attention is negative, no interest in gold is such a disadvantage.

The reason for the decline in actual interest rates on US bonds, and thus in the economy, is that their nominal interest rates remain very low. This due to the extremely expansionary monetary policy of the US Federal Reserve. But inflation expectations are rising. They are growing in connection with the gradual recovery of the economy after the blow of coronavirus. Also, the expansionary monetary and budgetary policy of the USA. Incluiding the weakening of the dollar, or fears of deglobalization tendencies, which are inherently inflationary.

If the real interest rate is already at its long-term bottom, can it be realistically expected to fall further sharply? If not, what will push the price of gold up another $715? Is the price growth of the precious metal no longer exhausted?

Undoubtedly, mania and the bubble can never be ruled out as in 1980, when rational considerations would be set aside. Forty years ago, investors believed on a massive scale that high inflation at the time would remain in double digits “forever and ever.” It was a misguided thought. But it temporarily provoked the mania and inflated the golden bubble.

At present, it will certainly not be a fear of persistently double-digit inflation. It will drive gold’s price to a record (real) maximum. However, this may be another concern. Concerns, especially of rich people and families. During these times of markedly increased uncertainty, “paper property,” i.e., property in the form of contracts and contracts, may not always be guaranteed. At least to preserve wealth for the future and future generations.

Wealthy people keep buying gold

It is the wealthy individuals and wealthy families – through the so-called family office – who are currently taking a record amount of gold in physical form. For example, in the form of ingots. Therefore, to a record extent, they decide to own gold tangibly. Not only indirectly, i.e., in the way of a contract or contract for the possible supply of yellow metal.

This increases the risk of a “run” on the physical gold market. In other words, too many people will request a paper contract’s physical settlement for the supply of gold in a limited time. In such a worldwide “gold run”, an unusual situation would arise for a transitional period. This with the price of yellow metal skyrocketing well above $2,000 an ounce.

Something similar would happen – only with the opposite sign – as in the oil market in April this year. The price of US light oil with the May delivery date fell completely anomalously as a “run” on storage capacity occurred. As a result, its storage became so expensive that it was temporarily more advantageous for traders to pay it for customers to take it from them at all.

If there is an anomaly in the physical gold market now, and is about to run, is that we can soon see a record price for the yellow metal, even in real terms, adjusted for inflation.