Gold Price Hits All-Time High, And It's Not Over Yet

The price of an ounce of gold in dollars has just beaten its historic record of 2011! The $1,922 mark was exceeded on July 27 ($1,945), and the symbolic $2,000 mark was exceeded on August 4. It should be remembered that this 2011 record in euros fell last summer and that this is the rate that should serve as a reference for us who live in the eurozone. However, the rate in dollars has a greater economic and symbolic significance, of course, if only because it was an American president who decided to suspend the convertibility between the dollar and gold (Richard Nixon on August 15, 1971), taking the other currencies with him.

The immediate question is: will the price of gold decline as it did in 2011 or will it continue to rise? Forecasting is always risky, but the answer seems clear enough to us. In 2011 we were in the midst of the European sovereign debt crisis, with Greece unable to meet its maturities, and with all the repercussions this could have had (spillover to other countries and banks). There was talk of an implosion of the euro, which of course benefited gold. Finally, after a vast aid plan supported by the European Central Bank's printing press, fears disappeared and, logically, the gold price fell back. Generally speaking, after the 2008 crisis, the central banks seemed to be back in control, growth was there, there was no reason to worry.

The context is quite different today. Already before the coronavirus crisis, investor concerns had reappeared in September 2019 when the Fed suddenly increased its liquidity provision ("repo crisis"), without ever really getting to the bottom of it. The confinement caused a collapse in GDP and the central banks' policy is to keep the printing press running at full throttle: the ECB's balance sheet now accounts for 61% of eurozone GDP, which is a new historical high, that of the BOJ 119.6% of Japan's GDP, that of the Fed 32.3% of US GDP, that of the Bank of England 31% of UK GDP. These sharply rising ratios are beginning to worry investors and savers: what is the currency worth if it is printed at such a high rate?

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