Nevertheless, I am sure there are just as many people who will be aghast at gold’s recent ascendancy as there are at the eye-watering valuations that tech stocks have reached. Gold has always divided opinion between those that see it as a barbarous relic that has no place in modern economics, and those that view it as the ultimate store of value that will endure long beyond any modern system of fiat money. It seems that the latter are currently winning the argument.
As it happens, gold’s current trajectory appears closely tied to modern economics, not least the debasement of money by stimulus in the wake of Covid-19. Indeed, gold’s rise has closely tracked the fall in real yields on government bonds, which are below zero. It makes sense to ask, therefore, with those yields on the floor, where gold goes from here.
The answer is more than likely: higher still. Without yield on safe-haven government bonds, the case for not owning gold has weakened. Meanwhile, the case for holding gold as insurance against economic and market uncertainty has been galvanised by the latest twist in the Covid tale. Much of the market exuberance over the early summer has been predicated on the idea that the pandemic is fizzling out. Signs that a second wave is coming, and some countries locking down for a second time, means that optimism looks to have been more Panglossian than pragmatic. If a second wave takes hold and brings a further shutdown of business as usual, the economic consequence will almost certainly require further stimulus. Safety first – and gold is the ultimate safe haven – could be the order of the day for some time. Dave Baxter and Alex Hamer have looked at some of the best ways to own it.
What of big tech, though, that has also been seen as a safe haven during lockdown as workers hunker down behind home computers and go about their business via web tools? The US second-quarter earnings season has perhaps given us a glimpse that it may be less safe than thought. As Megan Boxall explores in this week’s cover feature, the idea that lockdown has laid a foundation for a boundless digital gold rush is far from supported by the latest figures.
