Gold continues its remarkable ascent, recently hitting a record high of £2,000 per ounce and $2,666.50 in the broader market, marking a 29% increase against the U.S. dollar year-to-date. This rally is not only attracting attention from investors but is also fostering a notable surge in physical demand, a trend not typically associated with rising prices.
According to Stuart O’Reilly, Market Insights Manager at the British Royal Mint, buying has exceeded selling by a 2 to 1 ratio among investors in September. This suggests a strong belief that gold prices will continue to rise amid increasing geopolitical and economic uncertainty. The Royal Mint’s data reflects that gold prices have climbed over 23% against the British pound this year, mirroring its performance against other major currencies, including the euro and the Australian dollar.
O’Reilly pointed out that the Royal Mint’s bullion coins are exempt from the UK government’s Capital Gains Tax, making investments in physical gold particularly attractive for British investors. This tax advantage is enhancing the appeal of physical gold as a safe-haven asset.
The surge in prices has also catalyzed a wave of new investors entering the precious metals market. The Royal Mint has responded by introducing a range of investment products, from small bars to fractional coins, making it easier for first-time investors to access precious metals. This effort is seen as a step towards democratizing precious metal investments.
Joe Cavatoni, North American Market Strategist at the World Gold Council, echoed this sentiment, noting robust demand for physical gold as well. He highlighted that the current low interest rate environment is drawing more investors back into the gold market, reinforcing both physical and financial products as viable investment options.
However, Cavatoni cautioned that rising gold prices may negatively impact jewelry demand, which is already showing signs of weakness. Despite this potential downturn in jewelry consumption, investment demand remains strong, evidenced by the increase of more than 14 tonnes in holdings for the SPDR Gold Shares (NYSE: GLD) this month and a peak in speculative positioning in gold futures since February 2020.
In summary, gold’s historic price rally is significantly boosting both physical and investment demand, with new investors keenly entering the market. The combination of economic uncertainty, favorable tax conditions, and a diverse range of accessible investment options are likely to sustain this trend as gold continues to shine in turbulent times.
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