Could Central Banks Force Gold Over $2000 an Ounce?

Signals from central banks in the United States and the United Kingdom have fuelled speculation among investors that the price of gold could appreciate further in 2020 in line with efforts to boost inflation levels. This has prompted rumours of base interest rate cuts in both America and Britain in order to boost inflation levels.

In the US, money easing measures in the repo market has already been going on for some time now; analysts have their suspicions that this is just another method of quantitative easing, just without the purchase of US treasury bills. The spin department in the Fed is going into overdrive in denying that this is another form of money creation, but figures show at least $400 billion has been poured into the financial sector to address these liquidity worries. The chairman of the Fed, Jerome Powell, has suggested interest rates will rise only when inflation picks up, so any sign of lower inflation expectations could lead to further rate cuts. The Fed has already cut its interest rate target range three times in the last year.

Back in Britain, markets are already anticipating a rate cut by the Bank of England amid news that inflation slowed again in the month of January. The Consumer Prices Index (CPI) showed that prices were 1.3% higher than this time last year, which is a decrease from 1.5% last month and well below that target rate of 2%. How will this impact gold? Savers will face the brunt of the effects of higher inflation should central banks succeed in causing inflation by slashing interest rates. Money easing policies could also cause a spike in asset prices and further debase fiat currencies. On the face of this, it makes the traditional safe haven of gold an attractive asset. According to Bridgewater Associates, which is the largest hedge fund in the world, these circumstances factored in with geopolitical tensions have made the possibility of $2,000 an ounce gold more likely in 2020. With these indicators, it is easy to understand why savers and investors are getting nervous.

Gold in USD Over the Last 5 Years