published on January 8, 2020 

It is uncertainty about future geopolitical developments that has given the gold price a strong boost. Since the killing of a well-known Iranian general, the gold price has risen by almost five percent. Alone in the night of Wednesday, January 8, the precious metal peaked two percent to $ 1,610 per troy ounce , the highest level since early 2013.
The price surge reflects the nervousness of investors. "Especially in times of geopolitical tensions, gold is sought as a safe haven and is becoming the focus of investors," said Michael Stappel, analyst at DZ Bank. Many investors are wondering: Where should that lead?

This question applies both to the geopolitical development and increasingly to the gold price development. The gold price, after violent short swings upwards, gave up part of its price gains twice in a row. The price currently holds at $ 1,584. Still a proud development, gold only traded at just under $ 1,200 per troy ounce in August 2018. Since then, the price for precious metals has risen by a total of around 35 percent.

Gold: The price has been rising steeply since May 2019.
Gold has recently been in demand again as a crisis currency for a few months. So far, however, concerns about a weakening economy had primarily driven the flight into gold. The price of the precious metal has risen by a good 20 percent since May. Among other things, the slightly weaker dollar provided a tailwind.

The precious metal was also spurred on by the loose course of the European and US central banks. Because an important factor for the development of the gold price is the interest rate policy and thus the development of the US government bonds, which have received much attention in this context. If solid government bonds yield little or no interest, gold becomes more attractive. The yield on US government bonds has dropped significantly in the past few months, and government bonds of numerous European countries also offer low or negative returns.

But what are the chances of further price gains after this brilliant gold price rally?

Exaggerated response to the Middle East conflict?
The first voices already warn of a course correction. Raiffeisen analysts are already expecting setbacks after the sharp rise in gold prices. The current 7-year high is only a temporary peak, warns Peter Brezinscheck, chief analyst at RBI. His argument: The US Federal Reserve would no longer lower interest rates, which would make US government bonds more attractive again. The RBI expects only a gold price of $ 1,400 per troy ounce in the middle of the year.
Eugen Weinberg, head of raw material analysis at Commerzbank, also considers the recent rally to be exaggerated. "The price increase was mainly driven by purchases on the futures market," he explains in a comment.

A lot of gold on the market
Another risk factor: there is gold in abundance on the market . The mines produce more than ever before. It is not until 2022 that S&P Global Market Intelligence expects production volumes to decline. Pressure on the gold price is therefore also not to be expected from this side.
At the moment, jewelry buyers in India, alongside Chinese and other jewelry producers, are one of the largest buyer groups on the gold market. You wait and hope for lower prices. In any case, the gold season in India does not begin until summer, when jewelry manufacturers buy gold to meet the demand for gold jewelry for the wedding season, for which a lot of gold is traditionally given for free. However, their demand is usually relatively stable over the year.

Investors in gold are the main drivers of price,
but demand is most strongly driven by financial investors. Your exposure to gold also fluctuates the most. Demand for investors who invest in coins, bars or gold index funds (ETFs) fell by 66 percent in 2018 compared to 2017. However, the tide began to turn in 2018 and ETFs have seen high inflows again since then, and demand from gold traders has also increased significantly.

Many price targets for 2020 already broken
But even if the first experts warn of a gold market that has gone too hot, as long as the fear of a war in the Middle East prevails and in the end even one breaks out, gold will remain in demand as a safe haven. Even if numerous price targets for 2020 have already been broken by investment companies in the first days of the year. The German investment company DWS Gold has now upgraded as a hedging instrument.

An analysis by DZ Bank shows that the price targets of recent developments have galloped away. In a few days old analysis, it calculates that gold will reach the $ 1,500 an ounce mark in the next six months and will be $ 1,600 at the end of 2020.

Continued high demand from central banks expected
But there are also arguments in favor of a persistently high gold price. According to the World Gold Council, low interest rates and continued robust gold demand from central banks offer good chances that the gold price will continue to rise in 2020.

Chart technique: Good starting point for further price gains
Chart technicians rub their hands after the recent price increase. Martin Chmaj, chief analyst and chart technician of the online broker GKFX: "If the commodity speculators managed to keep the price above the $ 1,557 mark in the long term, this would mean a larger upward trend in the medium term that could not be overlooked by market participants."

Should the fear of an escalation in the Middle East calm down, however, there will be severe price setbacks - provided that a sluggish economy does not put pressure on the mood or other risks come to the fore.

Only 1.4 percent per year long-term income
Regardless of whether gold is topped up or placed in the depot for the first time, gold should only ever be a small addition to the portfolio. This is due to the non-existent return on this investment. The price development is strongly driven by emotions, since gold is primarily used to hedge risks. Even if prices are going through the roof, in the long-term review, gold only makes a modest return. According to data specialist Bloomberg, the annual yield in euros since January 1975 has only been 1.4 percent annually. The MSCI World share index rose to 7.4 percent annually in the same period. Investments in gold are not without risk either. The largest maximum loss since then has been over 70 percent. And those who were unlucky had to get by without income for over 30 years.