The prices of the safe haven exploded in August, despite a sharp drop in demand. Gold shatters records: the safe haven par excellence at the beginning of August surpassed its all-time high of September 2011, crossing the symbolic bar of 2,000 dollars an ounce. In January 2020, an ounce was worth $ 1,525. Gold will show an increase of 33% in 2020, a paradoxical performance, as demand fell sharply in the second quarter.
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Investors flock to the safe haven
The pandemic strongly impacted the demand for gold in the second quarter of the year. Shunned by consumers, the precious metal was however supported by financial investors, engaged in a real gold rush. The enthusiasm of investors drove prices up, until they reached new heights. The latest report from the World Gold Council (CMO) covers the second quarter, a period preceding the spectacular surge in August, but during which prices had risen considerably, despite a disaffection in the market. “The global response to the pandemic by central banks and governments, in the form of rate cuts and massive cash injections, has fueled record inflows into gold-backed ETFs,” the report’s authors explain. , which “helped to raise the price” of the precious metal.
A meteoric drop in demand
While financial products explode, consumer demand plummeted in the second quarter. The pandemic, the containment measures and the economic crisis have logically impacted the consumption and therefore the demand for gold in all countries of the world. The CMO report indicates in particular that, in the jewelry sector in India, gold consumption was divided by four between April and June over one year and fell by a third in China. These two countries usually represent 50% of this market segment. Central banks, for their part, have divided their gold purchases by two over one year compared to 2019 – the report specifies, however, that this proportion should be put into perspective, since the year 2019 was “exceptional” in this regard. plan. The volume of industrial demand fell by 18% compared to the second quarter of 2019. The pandemic has also impacted gold production. The mining sector has suffered a sharp drop in activity and occasional or prolonged closures in many producing countries.
The specter of stagflation
The rise in the price of gold worries financial circles, who see the specter of stagflation looming. The combination of slow growth and rising inflation could indeed take hold in some developed countries. Financial markets were impatiently awaiting the Fed’s speech on August 27 on the economic guidelines of the United States, where inflation has reached 1.5% in recent months. Federal Central Bank Chairman Jerome Powell has signaled an easing of monetary policy. Inflation may stay above the 2.0% target “for a while” before the Fed raises interest rates to contain it. This flexibility should in theory stimulate job creation in the United States and benefit households affected by the economic crisis. Other central banks could follow this strategy in the coming weeks.
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