by Associate Professor Colette Southam
For centuries, gold has represented a safe investment during times of high economic and political uncertainty.
During this flight to quality, investors sell riskier investments, such as stocks, and purchase safer investments, such as gold.
This week the price of gold is at an historical high, topping US$3130 per ounce.
The consensus in the international markets is that this surge is driven by global economic fragility related to US President Donald Trump’s tariffs.
Trump has already enforced tariffs against US allies Canada, Mexico, and the European Union, and levied tariffs against its greatest rival China.
Despite the Australian Government’s lobbying, our aluminium and steel exports to the US were hit with 25 percent tariffs as of March 12.
BlackRock investment Institute’s Geopolitical Dashboard lists Global Trade Protectionism as the top geopolitical risk by likelihood.
In addition to the first round of tariffs, the US has threatened reciprocal tariffs on countries that apply new tariffs or otherwise penalise US exports.
It has also threatened the BRICS countries as well as targeted tariffs on the oil and gas, semiconductor, pharmaceutical, and automobile industries.
We see solid evidence of this flight to quality as investors began selling off their riskier investments in mid-February with the S&P500 losing 5.8 percent in March, the fastest drop since 2022.
In 2007, during the Global Financial Crisis, gold began a steady climb and soared past US$1000 per ounce in 2009.
The most recent climb began in 2023 with the central bank of China adding 7.23 million ounces to its gold reserves, the most in a single year since the 1970s.
In September 2024, Bank of America’s Michael Harnett sent out a buy recommendation for gold as a hedge against inflation.
Traders looking for quick and easy returns jumped in then.
After the US 2024 federal election, the climb steepened again, related to the threat of tariffs.
While investors will have missed the opportunity for huge gains, some analysts predict gold will continue to rise, potentially to US$3500 an ounce.
Although Australia has not spoken about retaliatory tariffs, Canada and the EU already have.
One only needs to refresh their news feed to read about new developments in the global trade war. So maybe it’s not too late to jump in.
I am a buy-and-hold investor with a long-time horizon, but I do add a little market timing.
Therefore, I don’t buy gold when it is at an all-time high and don’t make big buys when the Australian dollar is only US64 cents.
Maybe now isn’t the best time to buy gold, but history has shown us that gold has been a sound long-term investment - and to quote my geologist partner, “It’s sparkly too!”
- Dr Colette Southam is an Associate Professor of Finance and Director of the Centre for Experiential Learning at the Bond Business School, Bond University.