Money Printing Prompts Gold Price Spike

27 Apr 2020 | 09.44 am

Money Printing Prompts Gold Price Spike

Zurich Life Gold Fund tracks Invesco ETC

27 Apr 2020 | 09.44 am

Nigel Doolin picked a good time to start his new venture. Core Bullion in Dublin was incorporated in March just as the coronavirus began to have a negative impact on equity and property markets.

With central banks around the world turning on the currency printing press to prop up ailing economies, the price of gold has surged in recent weeks, up to $1,740 an ounce recently.

Gold bugs see the precious metal as a haven against currency debasement, and Bank of America is particularly bullish, raising its 18-month price target recently from $2,000 to $3,000 an ounce. In the past seven years, gold has mostly traded in a range of $1,150 to $1,350, subject to periods of sharp decline when investors dispose of their bullion to cover losses on other assets.

The gold price firmed to the $1,400 level last year, and in recent months the trend has been towards $1,700 and beyond. Aiding sentiment is a physical shortage of the metal, as the virus shuts down gold mines and processors, and grounds the aircraft used to fly gold around the world.

There are many ways to invest in gold. Core Bullion sells gold in one-ounce bars, which you can either hide under the mattress or, more usually, place in a safe deposit box.

“We guarantee that we will buy back any gold that we sell at the market rate – no-one else is doing that at the moment,” says Doolin (pictured), who was formerly head of trading with Merrion Gold. He adds that gold buyers should avoid gold coins. “A one ounce coin will generally cost €30 to €90 extra per ounce but you will never get that extra value back,” says Doolin.

The more popular method for gold investing is through Exchange Trade Funds, or Exchange Traded Commodities in Europe. The world’s largest gold ETF is the SPDR Gold Shares, which has $48bn of assets. These assets are actual gold bullion, and it is estimated that gold ETFs worldwide hold 3,000 tonnes of gold, worth c.$160bn at current gold prices.

Most investment funds are underwater year to date due to coronavirus impact, but not the Zurich Life Gold Fund, which has €146m invested. The fund invests in an ETC managed by Invesco, which aims to track the spot price of gold in US dollars.

As of mid-April, the fund was up 14% year-to-date, and has appreciated by 36% in value over the past year. The five-year annualised return for this fund is 6%, which goes to show that the current gold price spike is unusual.

Pic: Conor McCabe

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