The UN officially recognises as many as 180 currencies in active circulation, across 195 countries. You can bet your bottom dollar, pound or yuan that where there’s money, there’ll be gold. The only issue is that one troy ounce of gold can be worth drastically different things, depending on the currency you’re using.
If you’ve been checking the value of gold, especially looking at UK gold prices, you’ll see prices have outperformed gold as priced in US dollar terms. Why is this so, how is the price of gold actually measured and how do we decide on a gold price prediction 2020?
The dollar dictates sentiment
To fully understand why the gold price behaves the way it does, you need to start by looking at the US dollar. It’s the world’s largest reserve currency, and historically speaking, the performance of the US dollar or the US economy as whole dictates how high or low gold prices will go.
The Gold Standard of days long gone kept a lid on prices for many years, and a country’s fortunes were heavily dependent on how much gold was held within its national borders. After 1944, the Bretton Woods system kept currencies in check, and if you were a country with a falling supply of gold reserves, you would be likely to have to devalue your currency, in line with the requirements of the Gold Standard.
The 1970s changed everything - in 1971, President Nixon’s pivotal role in ending the Bretton Woods system led to the dollar becoming what is termed a fiat currency - its value was now determined based on the physical supply of dollars sloshing around the currency markets. High inflation soon followed, and now that gold was no longer constrained, it reacted strongly by soaring in value.
Half a century later, gold remains a safe haven in times of economic distress. Moves to devalue the dollar almost always result in higher prices, but financial shocks also help push prices higher, as investors buy gold, if other assets suddenly crash in value.
To keep an eye on where the UK gold price 2020 is currently at, check out our free Live Gold Prices chart - it’s updated every few minutes, giving you an insight into where precious metals are heading. This will help you to your own gold price forecast 2020.
The Gold Fix - how it impacts gold prices
You might be asking, how are gold prices actually measured? In short, they’re fixed.
No, we don’t mean they’re inaccurate or rigged. The Gold Fix simply means that the price is set twice daily (10:30am and 3pm London GMT) by the ICE Benchmark Administration during a conference call, where they ultimately determine where the price is, in US dollars. In addition, sterling and Euro prices are available, but purely indicative ones, for settlement purposes only.
Something that UK-based gold investors have seen in the last five years is that gold has shown a particular outperformance in pound sterling terms, compared to the dollar. But how could this be? The US and the UK share a language, and their economies aren’t too dissimilar in per-capita terms.
Simply put, the volatility in the UK gold price stems from fluctuations in the currency markets themselves.
The pound has been steadily devaluing against the US dollar over the last 150 years, with two large devaluations more recently in 2008 and 2014-16. During the last 20 years, gold in UK terms tracked the US price, as gold prices enjoyed a decade-long bull run.
However, sterling weakness from 2010 onwards led to greater upward momentum, purely due to this currency effect, meaning that despite gold peaking in dollar terms in 2011, it managed to break out to a new all-time high in sterling, as it was grinding upwards, slowly but surely.
2019 was a great year for record-high prices in the UK, hitting over £1,200 per troy ounce. The gold price forecast 2020 could see an even greater bull run, if the pound remains weak, due to Brexit fears over the coming year.
Dubai’s gold price dilemma
In the case of Dubai, gold prices haven’t always been what they seemed. Dubai is one of the largest emirates of the UAE, and is well-renowned for its great gold markets or souks, and the jewellery, coins and gold bullion you can buy. Investors will know that Dubai has a massive supply of the yellow metal, and there are attractive reasons to invest in and store gold in this part of the world.
Despite that, gold prices have been slightly tricky to measure until recently. In 2015, Dubai’s Department of Economic Development (DED) realised gold sellers were potentially confusing tourists, so it stepped in to force them to change their ways, setting out guidelines for ensuring that all gold sellers installed screens in their shops, displaying an “official” price of gold which was uniform from seller to seller.
The initiative was enforced, as they wished to eliminate the perception that foreign buyers would be feeling deceived in some way, having some sellers demanding higher prices than the markets had intended. One thing of interest to investors is that the DED also decided to make moves to protect Dubai’s gold and jewellery industries, by placing a three to five per cent mark up on gold prices.
Gold prices - not what they seem
The case of Dubai goes to show that gold prices can be radically altered, especially by government intervention. Higher UK gold prices due to sterling weakness also demonstrate how the economic vulnerability of a country can be a great determining factor in ensuring higher gold prices.
Here in the UK, our January gold price for 2020 remains close to those all-time highs in 2019, while gold investors in the US are still remaining stuck at lower levels. This means if you’re thinking about investing in gold, especially with us here at the Gold Bullion Company, it’s important to consider how sterling is doing when considering the gold price forecast 2020.
Not only that, you need something of a double or even 2020 vision, by being mindful about price action in dollar terms too. Tensions in the Middle East, concerns over the ongoing trade war and the impact of Brexit are all factors that could help push US prices higher, and if the pound weakens further, you could reap even greater rewards.
If 2020 feels like the time for you to start taking a chance by investing in gold, why not get in touch with us, here at the Gold Bullion Company today?
