Gold and Silver – Is There Room for More Advances?

on Jul 27, 2020
Updated: Dec 19, 2022

The price of gold and silver exploded higher during the coronavirus pandemic – just as they were supposed to do if precious metals bring safety to a portfolio. It seems that they do, as investors pile in on the buying side, with the price of gold almost printing a new all-time high. 

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Everybody is talking these days about how gold will break above $2000 and how much higher it will go. Silver also had a nice run from the bottom, but there is a long way to the highs. The rationale for trading/investing in silver is often derived from the price of gold, as indicated by the gold/silver ratio timeline.

$2000 for Gold – A Magical Number

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The price of gold is at an all-time high, trading shy below the $2000. During times of crisis, gold protects investments as one of its qualities is that it offers a hedge against inflation.

However, if anything, inflation is nowhere to be seen so far in the COVID-19 crisis. So why is the price of gold soaring?

One explanation comes from the USD – the world’s reserve currency. The price of gold, when expressed in terms of the world’s reserve currency, depends on the strength of the USD. Investors often trade in anticipation of future events, dedicating a small portion of their portfolios to precious metals such as gold or silver.

The steady decline of the USD across the FX dashboard lately raised the question of what other investments exist? If the USD, usually viewed as a safe-haven asset during a crisis, is declining, is there a point investing in another fiat currency? Or does it make more sense buying precious metals to protect the portfolio from the USD meltdown?

What is curious at the price of gold is that it broke higher way before the coronavirus pandemic. More precisely, in June 2019, it completed an inverted head and shoulders pattern, it broke higher and did not look back ever since.

Gold investors religiously keep a portion of their portfolios invested in gold. In times when the price of gold corrects, long-term bulls add slowly to their gold assets, preparing for uncertain times. As history showed us, there is always something happening in the world that makes sense from a gold investment point of view – the Gold Standard Act, the Bretton Woods agreement, etc.

And now, the coronavirus pandemic sends the price of gold at all-time highs.