Gold is trying once more to break through, and away from, the $1,800 an ounce mark but it is making heavy work of it and sceptics could be forgiven for thinking the trading price is as inert as the metal itself.
This is no doubt frustrating for gold bugs as everything seems set for the metal to do well: surging inflation, lofty government debts, swollen central bank balance sheets thanks to Quantitative Easing and even geopolitical uncertainty in Eastern Europe, the Middle East and the South China seas.
“Markets are presumably therefore still of the opinion that central banks are still in control and that with some deft ‘forward guidance’ and a few nimble adjustments to monetary policy they can nip inflation in the bud, keep economies growing, help governments manage their debts and avoid upsetting financial markets,” says AJ Bell Investment Director Russ Mould.
“For gold to shine, markets may therefore need to lose faith in central bank policies, something which could happen if the economy tips into recession as the combination of global debts and higher interest rates proves too much and policy makers have to return to cutting borrowing costs and adding to QE well before inflation is reined in.
“The clearest sign of this would be if real interest rates – the headline borrowing cost after inflation – remains deeply negative, either because inflation proves persistent or central banks abandon plans to tighten policy and (for whatever reason) elect to loosen it again.”
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