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Gold leaps on world tensions

Topics [ gold investing gold bull market gold analysis gold prices ]

Gold prices have begun 2020 on a very strong footing, with the yellow metal rallying beyond USD 1,600 and AUD 2,300 per troy ounce.

The proximate cause of the latest rally is the sharp escalation in tensions between the United States and Iran, with the drone strike that killed Iranian military general Qassem Soleimaini sparking a wave of safe haven buying.

The rally in precious metals is a continuation of a strong upside move which can be dated back to Q4 2018 when a sharp decline in equity markets reignited demand for gold and other safe haven assets.

Since then, gold has rallied by more than 30% in Australian dollar terms, topping AUD 2,000 per troy ounce for the first time ever last year as interest rate cuts and a decline in global bond yields helped fuel investor demand for the precious metal.

This demand has come from a multiple sources including central banks, which bought record amounts of gold in 2019, and gold ETF buyers who increased their holdings to all-time highs last year.

The Perth Mint has seen the growth in investor appetite for precious metals firsthand, with the number of clients opening direct depository accounts more than doubling in 2019. Meanwhile holdings in our ASX-listed product, ticker code PMGOLD, rose by 45% last year.

In troy ounce terms, December 2019 demand for our Australian gold bullion coins and minted bars neared 79,000 ounces – up 45% on the previous month. Driven by strong sales of Kangaroo and Lunar coins, particularly in Germany, the number of ounces sold in December 2019 increased 170% compared to same period in 2018.

The case for gold remains as strong as ever. The likelihood of elevated geopolitical tensions in the Middle East, equity market volatility and the prospect of even lower interest rates in Australia in 2020 are some of the many factors encouraging investors to allocate a portion of their portfolio to the precious metal.

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