Why There’s More to Gold’s Rally Than Inflation Fears

Gold rallied to a record high and gold futures touched $2,000 an ounce as financial markets digested the havoc caused by the coronavirus pandemic. And that breathed new life into the old question of why investors still bother with what’s likely the most primitive form of money in their portfolios. Bullion is best known as a time-honored haven from inflation, but there’s more to its appeal, and plenty of conflicting forces at work that can excite commentators and investors.

The short answer is yes, and no. Research suggests gold’s purchasing power remains relatively stable over very, very long periods. The amount of bread purchased by an ounce of gold has remained relatively stable since the age of Babylon. But on a less-cosmic time frame, the answer isn’t as certain. Since late 2018, the metal rallied 70%, yet inflation has remained subdued, and is below the level targeted by most of the world’s big central banks. So there’s clearly more that just inflation fears at work.