• The gold price broke $US2,000 an ounce for the first time this week.
• Coming during a global pandemic, demand for a safe-haven investment has been strong.
• These are the four factors driving prices higher, according to Perth Mint analyst Jordan Eliseo.
• Visit Business Insider Australia’s homepage for more stories.

Gold broke through $US2,000 an ounce for the first time ever this week and it shows no signs yet of slowing.

As the coronavirus crisis tears through markets, gold appears to be the shiniest victor emerging from the crisis.

While no one knows where this road leads from here, analysts have a few arguments for why gold is soaring right now.

“I think there are probably four elements which are driving gold, some of which were in play before COVID-19 and some that have been exacerbated by it,” Perth Mint analyst and former economist Jordan Eliseo told Business Insider Australia.

1. A port in stormy seas

Above perhaps all else, gold is seen as a defensive asset. In other words, investors have a tendency to buy it when they’re looking for a less volatile place to park their cash.

“Whenever equities tend to sell off, gold has typically been the safe haven that investors turn to – and so that has helped push prices higher, particularly in the first three months of the year,” Eliseo said.

While sharemarkets have rebounded strongly since their sudden sell-off in March, it hasn’t been enough to lure investors back out of gold.

“It actually shouldn’t really be a surprise to anyone that gold is rallying alongside a rising equity market, especially in 2020, when a lot of the reason for the equity market rally is pure stimulus coming from central banks,” Eliseo said.

As the coronavirus crisis emerged, governments and central banks from around the world have stepped up to try and steady the ship. From subsidising wages and providing bolstered unemployment support to increasing the money supply, investment has flowed into equities in an effort to buy the dip, despite the prevailing risks.

The other thing that has changed is that a broader base of people in Australia and overseas are looking to invest.

“The spread of investors buying gold has drastically widened in the last year so it’s not just the existing gold investors that are adding to their holdings,” Eliseo said.

“There is a whole sort of new wave of entrants including self-managed super fund trustees, financial planners, and young Australians looking to safeguard whatever wealth they’ve managed to build so far.”

2. There are few good defensive alternatives

The crowd of people looking to protect their wealth have been funnelled into gold at a time when there isn’t a wide field of options.

Warnings abound over risk assets such as equities, while there’s plenty of reasons Australians are still nervous around the property market, especially when one in nine mortgages aren’t being repaid.

At the same time, defensive assets like bonds have essentially become a loss-making instrument.

“There’s been an enormous decline in real yields on government bonds,” Eliseo said. “Over the last almost two years, the real yield you could earn on a 10-year US Treasury [bond] has gone from roughly 1% to minus 1%, so you can have a guaranteed loser if you’re keeping your money in the 10-year treasury bonds as it stands now.”

Meanwhile, historically low interest rates mean even the best savings accounts are hardly promising more than a cent on the dollar.

While Bitcoin and other cryptocurrencies have rallied strongly in recent weeks, their inherent volatility is likely a disincentive to the sensible majority.

3. The US dollar is weakening

The US dollar, that gold-standard currency, is not what it used to be.

With gold priced in US dollars, any falls in the greenback’s value makes the price of gold fall in other currencies, thus increasing global demand. Throw in what’s been happening in the last few weeks with both, and the market trajectory makes perfect sense.

“The US dollar had its worst month in nearly 10 years in July, so obviously that has been another tailwind for gold,” Eliseo said.

4. Momentum doesn’t hurt

While market movements don’t always lend themselves to explanation, there’s one phenomenon that tends to play out time and time again: momentum.

Gold likewise appears to at least in part be benefiting from a similar virtuous cycle.

“Investors quite understandably want to be long in a bull market and it’s become something of a self-fulfilling prophecy,” Eliseo said. “People want exposure to it, they buy it which creates more upward price momentum and so it goes.”

Naturally, momentum can sometimes run its course. As the gold price continues to find new heights, it’s possible that the market is in for a short term correction.

“When you see precious metal markets rally as fast as they have, a period of consolidation would not be unexpected and in many ways it would be healthy for the market,” Eliseo said.

“But over the medium to long term, the case for owning gold in a portfolio is as strong as ever.”

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