What's going on?
Investors powered up gold’s price to reach above $2000.
What does this mean?
Gold’s a go-to place to stash cash when the wider environment turns dicey, because it tends to hold its value throughout inflation, global turmoil, and currency dips. So now that financial systems are feeling the strain of het-up interest rates, investors and central banks alike are stocking up on gold. But that’s not the only reason investors are keener than usual. See, gold doesn’t dish out income like stocks and bonds, so when high interest rates make income-producing assets look more rewarding, the metal tends to get the cold shoulder. But the opposite’s true when rates are lower, and now that Wall Street’s whispering about interest rate cuts, investors are buying up gold in anticipation of a turnaround. The result: the price of gold crept above the $2,000 mark, landing just $60 shy of the record $2,072 from 2020.
Why should I care?
For markets: Not quite liquid gold.
Not every commodity thrives in downturns. Brent crude has slipped for five weeks straight to end up roughly a fifth lower than its October high. That’s partly because supply’s been plentiful, but China’s lackluster recovery has also meant the world’s biggest buyer of crude oil has been drinking less of the stuff than usual. So all eyes will be on OPEC this Thursday, when the group of oil-producing nations will discuss the state of their production cuts.
The bigger picture: Destination diversification.
Despite inflation showing signs of defeat and the economy staying strong so far, the risk of seeing the opposite – sticky inflation and sluggish economic growth – is still looming. That “stagflation” scenario can be kryptonite for traditional portfolios: stocks end up squeezed while bonds’ regular payouts whittle away. But you guessed it: that’s exactly the environment when you might want hardy gold in your portfolio.