Ebenezer Ashley’s thoughts … Performance of gold in 2020 is the highest since 2010

1 Kilo gold bar

Mining of the precious metal called gold is a lucrative business with operations spread across the various continents with the exception of Antarctica (Metals Focus & World Gold Council, 2020). In 2019, forty-three (43) countries produced 3,272.7 metric tonnes of gold.

Stability in the price of gold per ounce has been a major concern to some investment analysts in the global market in recent years. The inflation-adjusted price per ounce recorded for gold in recent years are as follows: 2010 = US$1,652.87; 2011 = US$1,748.40; 2012 = US$1,861.37; 2013 = US$1,332.18; 2014 = US$1,324.19; 2015 = US$1,165.48; 2016 = US$1,230.02; 2017 = 1,356.14; 2018 = US$1,314.97; 2019 = US$1,527.57; and 2020 = US$2,034.45. The foregoing figures reflect closing prices. That is, the price of gold per ounce as at December 2010 through December 2019. However, the figure for 2020 (US$2,034.45) reflects the gold price per ounce as at 7th August, 2020. The price per ounce and performance of gold in 2020 are unequalled since 2010. Stated differently, the performance of gold in terms of price per ounce in 2020 is the highest since 2010. We observe about 38.18% hikes in price of gold per ounce between 31st December, 2019 and 7th August, 2020.

This exceeds the respective annual percentage increases recorded in 2019 (16.17%), 2017 (10.25%), 2012 (6.46%), 2011 (5.78%), and 2016 (5.54%). The data depict fluctuations in gold prices between periods, with stable and consistent price increases from 2010 through 2012; between 2016 and 2017; and between 2019 and the current financial year.


Monthly Price of Gold

Available monthly data for 2020 indicate the inflation-adjusted price of gold per ounce in January 2020 was US$1,579.27. This was about 3.39% more than the closing price (US$1,527.57) in December 2019, and US$42.20 short of the price (US$1,621.47) recorded in February 2020. The other prices are: March (US$1,603.05); April (US$1,725.33); May (US$1,734.28); June (US$1,770.70); July (US$1,974.70); and August (US$2,034.45). Overall, the statistical values depict steady increase in gold prices over the eight-month period, save the price (US$1,603.05) in March 2020. So far, the most significant percentage increases in price (11.52% and 7.63%) in the current year were recorded between June (US$1,770.70) and July (US$1,974.70); and between March (US$1,603.05) and April (US$1,725.33) respectively. Some market analysts have predicted the average closing price for gold in the current financial year would be over US$1,900.00 per ounce. Indeed, gold has proven to be a major source of investment in times of both volatility and stability in the global equity markets in particular, and in the global financial markets in general.


Leading Gold Producing Countries

Available statistics on the world’s leading producers of gold in 2019 revealed China is the leading producer of gold. China’s total production volume of 383.20 metric tonnes affirmed her leadership in global gold production. The contribution of the People’s Republic of China to global total gold production during the period was equivalent to 12% (World Gold Council, 2020).  The total production capacity (329.50 metric tonnes) of the Russian Federation was 129.30 metric tonnes more than that of the United States. This affirmed their respective 2nd and 4th rankings during the period. Ghana’s total volume of gold production in 2019 was estimated at 142.40 metric tonnes, and equivalent to 4.35% of global total gold production. It was the 7th highest production volume and compared favourably with the respective total volumes produced by South Africa (118.20 metric tonnes), Mexico (111.40 metric tonnes), Brazil (106.90 metric tonnes), Sudan (76.60 metric tonnes), Mali (61.20), and Colombia (46.30 metric tonnes), among other major gold-producing countries during the period.


Demand / Performance of Gold

The global demand for gold could be categorised into four: gold demand for technology, investment, jewellery, and demand by central banks. Innovations in technology, specifically in electronics are believed to be nucleated around gold and nanotechnology. Scientists describe the latter as the branch of technology which focuses on dimensions and tolerances of less than hundred nanometers, when it comes to the manipulation of molecules and individual atoms. Gold and nanotechnology play a significant role in innovations introduced in areas such as environmental management, medicine, and engineering. The precious metal plays a crucial role in dentistry and development of medical equipment for effective drug transfusion into the human body. Gold has proven to be both counter-cyclical and pro-cyclical. Its performance becomes manifest in periods of uncertainty; it serves as a safe haven for investment and investors in uncertainty periods. Gold prices in the short- and medium-term are strongly influenced by investment factors. Generally, an investment portfolio is enhanced and protected when modest allocations are made to the precious metal. Expected and unexpected market shocks could increase investment losses, volatilities, and reduce purchasing power. However, the inclusion of gold in portfolios provides strong protection for investments during these periods. The acceptance of gold as reliable investment source and store of value in the long-term are beginning to gain currency among investors. This is evident in more than 235% increase in annual investment in gold in the last three decades. In spite of the foregoing, the share of gold in global investment portfolios is less than 1% (World Gold Council, 2020).


Demand for gold for production of jewellery accounts for over 50% of global supply annually. By far, it is the sector with the largest demand for gold around the world. Markets in the Middle East and Asia dominate the demand for high-caratage and purer gold. Indian and Chinese jewellery markets account for about 50% of demand for gold across the globe. The financial crises of 2008 compelled many central banks to review their respective reserves and behaviour toward gold. Currently, central banks are a major source of demand for gold annually; central banks in emerging markets have increased their demand for gold while European banks are no longer selling. Central banks are increasingly appreciating gold as a long-term store of national value. Statistics released by the World Gold Council (2020) indicated about 7,853 metric tonnes of gold were sold by central banks between 1987 and 2009; and they purchased about 3,297 metric tonnes between 2010 and 2016.

Factors Influencing the Price of Gold

Some observers in the global financial markets have wondered why the price per ounce of gold continues to surge in spite of the headwinds from the COVID-19 pandemic. Several factors account for the sterling performance of the precious metal in the midst of the COVID-19 outbreak. Notable among these include the following.


Demand and hedge against volatility

In India, gold is perceived as a major source of ornamentation and investment. A recent study conducted by the World Gold Council in collaboration with the Federation of Indian Chambers of Commerce and Industry revealed about 77% of the sampled respondents identified gold as a significant source of investment while over 50% attributed their demand for gold to ornamentation. As noted earlier, gold has proven to be both counter-cyclical and pro-cyclical. That is, it serves as an attractive asset in challenging and normal economic times. Many investors would prefer to invest in gold during economic boom or recession. It provides strong protection for investment portfolios against volatilities. Generally, gold prices are not significantly impacted by the external and internal economic factors that influence returns on investments in most asset classes.


Interest rate factor

In a global investment regime characterised by low interest rates, many investors, including households would prefer to hold their investments in gold, especially when other assets or securities are losing value. In Ghana, interest payments on 91-, 182-, and 364-day Treasury bills have witnessed significant decrease in the current financial year. When the latter occurs, the returns on investment are adversely impacted. This influences investors’ decision to seek “investment relief” in gold. The relative strength and performance of gold assure stability in investments. Thus, gold becomes strong and effective portfolio diversifier when equities and other asset classes are underperforming in the global capital markets.


Protection against inflation

The COVID-19 outbreak has spiraled inflationary levels in individual economies and regions across the globe. For instance, the average inflation rate recorded in Africa in May was 15.2%, up from the 15.0% recorded earlier in April 2020. However, rising inflation tends to affect the stability and value of implied currencies. As at 30th June, 2020, the Brazilian real relative to the American dollar has fallen in value or depreciated by 31.6%, Zambian kwacha by 28.2%, Russian rouble by 16.0%, Mexican peso by 17.4, Turkish lira by 15.4%, and Ghanaian cedi by 2.36%. The exchange rates of the foregoing currencies relative to the American dollar do not have direct effect on global price for gold per ounce. However, prolonged inflationary period encourages investors to purchase gold to hedge against conditions of uncertainty arising thereof. Thus, investors in the afore-mentioned economies would be interested in purchasing gold rather than keeping their respective local currencies during the inflationary period. As investors seek investment respite in gold during periods of inflation, demand for the precious metal increases. All else held constant, increased demand relative to supply would result in higher gold prices.


Favourable Weather Pattern

Favourable weather conditions allow farming activities to thrive and for farmers to increase yield and harvests. Dhawan (2019) estimated annual gold consumption in India between 800 tonnes and 850 tonnes with rural India accounting for about 60%. Increased crop harvests allow farmers to earn more revenue. A substantial portion of the farmers’ earnings is held in the form of gold to assure wealth or assets creation. During lean farming seasons, portions of the gold are sold to generate funds. Thus, rural India perceives investments in gold as a viable source of hedging against volatilities in the relative strength and stability of the Indian rupee.


Geopolitics and pandemic outbreak

Extant research has proven the precious metal performs creditably during periods of geopolitical and economic exchanges between and among nations; and during prolonged periods of natural disaster occurrences. Consequently, the recent trade war between the United States and China, and the COVID-19 pandemic outbreak have increased trade uncertainties; these unfortunate socio-economic situations have impacted adversely on the prices and values of other asset classes, and boosted the prospects and price per ounce of gold in the global market. In periods such as the foregoing, investors perceive gold as a safe haven for storing wealth. To this end, the demand for and price of gold witness significant increases.


Gold and the American dollar

Impact of the COVID-19 outbreak on the United States and other advanced economies in the current financial year cannot be over-emphasised. China has already injected US$344 billion into her economy to boost manufacturing and other related activities. After an initial US$2 trillion stimulus-injection, there are considerations for additional US$3 trillion stimulus-injection into the United States economy. The devastating effect of COVID-19 on the United States economy has rapidly affected the values of many asset classes, including investments in equities; and weakening of the American dollar. To stem the tide, most investors tend to seek investment “refuge” in gold. As noted in the preceding section, gold is denominated in the American dollar and often maintains an inverse relationship with the currency: demand for gold increases when the American dollar weakens and investors seek alternative investment sources to strengthen their investment portfolios. Conversely, demand for gold decreases when investments in other asset classes become attractive through higher returns on investments; and the American dollar appreciates in value.


Demand by central banks

The menacing effect of COVID-19 prompted the ingenuity of central banks across the globe. Most governments and their respective finance ministries and central banks were compelled to roll-out measures that would ease social and financial burdens while advancing national economic stimulation. These include liquidity injection, policy and interest rate cuts, tax waivers and tax reductions, among others. According to the World Gold Council (2020) these governments and central banks’ initiatives increased gold prices by 17% at the end of the second quarter of 2020. The initiatives resulted in total flow of 734 tonnes into gold-backed exchange traded funds (ETFs). Total demand for gold by central banks during the second quarter was 233 tonnes. Central banks’ total purchases slowed during the second quarter. However, the quantity (233 tonnes) was higher than total purchases in the second quarter of 2019. Cumulatively, the balance sheets of the G4 Central Banks comprising the Bank of England (BOE), Bank of Japan (BOJ), Federal Reserve (FED), and European Central Bank (ECB) are projected by Morgan Stanley to increase by US$7.2 trillion. As more assets are purchased with the American dollar, the currency weakens and creates room for further investments in gold.


Future prospects for gold

Globally, demand for gold at the end of June 2020 was estimated at 2,076 tonnes, representing year-on-year decrease of 6%. Demand for gold for jewellery decreased to 572 tonnes, representing 46% decrease while demand for gold for technological usage reduced to 140 tonnes, representing 13% fall during the period. The fallen demand could be attributed to factors such as market lockdowns, decrease in disposable incomes, increase in the price of gold, and significant decrease in end-user demand for electronic gadgets and equipment. Similarly, investments in gold bars and coins decreased to 396.7 tonnes. This represented a year-on-year decline of 17%. The response of investors in the Middle East and Asian markets to investments in gold was low relative to their counterparts in the Western markets. Actual demand for gold in the second quarter was 1,015.7 tonnes, representing year-on-year decrease of 11%. The World Gold Council (2020) attributed the poor performance of gold in terms of demand to the ravages of COVID-19. Although demand for gold was low, the precious metal provided strong support for investments. Gold production and recycling were impacted by lockdown restrictions. This resulted in total gold supply of 2,192 tonnes, representing 6% reduction; and 116 tonnes (2,192 tonnes – 2,076 tonnes = 116 tonnes) more than total demand during the first half of 2020. Notwithstanding the excess supply over demand situation, gold prices continued to surge during the period. Limited gold mining has increased recycling of the precious metal in recent years. Available estimates peg global demand for gold at 1,000 tonnes more than supply. This and other macro-economic factors such as inflation and lower interest rates affirm strong prospects for gold in the global financial markets.



Gold prices in the short- and medium-term are strongly influenced by investment factors. However, in the long-term, central banks’ demand, long-term savings decisions, supply dynamics, and consumer demand, among others, tend to influence the price per ounce in the global market. The impact of COVID-19 on global economies including Ghana in the current financial year is ominous; the pandemic has marred most socio-economic initiatives and activities. This notwithstanding, major gold producing countries and economies such as Ghana with significant gold reserves are likely to end the current financial year with improvements (if not significant improvements) in their respective financial inflows to “douse” the debilitating effect of the pandemic on total national expenditures.

The writer is a Chartered Economist/Business Consultant

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