Understanding the Canadian gold price

137

If you own gold jewellery or gold bullion, you’ll want to stay on top of the price of gold. You might not be parting with your precious yellow metal anytime soon, but you never know when the gold price will hit a point where you’ll think, “Maybe it’s time to sell my gold to a trusted buyer and make some extra cash.”

Also, just like anyone owning stock in a company, tracking the price of gold daily or weekly can be an exercise in smart investing. Don’t we all know the value of what buy into, whether we plan to sell or not?

Operating in Canada, Gold.to recognizes how confusing it may be for some market newbies to understand the Canadian gold price. That’s where we come in, with a useful blog post you will undoubtedly want to bookmark for constant referral. We also track the history of prices and looks at how government policy and trade issues in the US can influence what we pay for gold in Canada.

First, the Canadian government states that gold is Canada’s most valuable mined mineral, with a production value of $9.6 billion CAN in 2018. In 2018, the value of Canadian gold exports reached $17.3 billion CAN. The trend of gold as a highly sought-after precious metal is not abating anytime soon.

Put simply, if the Canadian dollar goes up, the price of Canadian gold goes down. The US-to-Canada exchange rate plays a role in how we get the Canadian gold price from the American equivalent. 

What helps to comprehend is how the gold price is just like any stock that rises and falls. So the stock market and the state of the US dollar influence the state of the Canadian gold price. 

Also a factor is the health of the economy of each country, which of course also affects the Canadian and American stock markets. If the Canadian economy endures a slumping period, that could hurt the Canadian dollar, and make the US dollar more attractive and stronger, therefore including gold, albeit indirectly. Most likely, in that scenario, the price of gold will shoot up.

Who makes up the gold market? It includes long-term investors, which are comprised of primarily private individuals who believe in gold as a better store of value than other currencies, and short-term traders, who are usually financial professionals looking to play on momentum trades. The groups invest in gold with different time horizons and with varying goals.  

Those taking a long-term view often see gold as a hedge against inflation and as security against financial uncertainty. They tend to buy both paper gold (in the form of ETFs), and physical gold (in the form of coins, bullions and, in some cases, gold jewellery). The physical market is split between these small buyers and the central bank bullion buyers who acquire gold as national currency reserves.

Gold can often be regarded as a safe haven for investors. “Given the persistent nature of the US-China trade conflict, which has injected greater doses of recession fears into markets, the overall demand for safe haven assets is expected to remain resolute,” said Han Tan, market analyst at FXTM, a currency broker, according to CNN.

It seems like an opportune time to look at the history of gold prices, and we’ll be using the US figure since it’s often the most reported price throughout headlines and gold-specialist reports.

Going way back, to 1257, Great Britain set the price for an ounce of gold at 0.89 pounds. It increased the price by about 1 pound each century, as follows:

1351 – 1.34 pounds

1465 – 2.01 pounds

1546 – 3.02 pounds

1664 – 4.05 pounds

1717 – 4.25 pounds

In the 1800s, most nations printed paper currencies that were supported by their values in gold, known as the gold standard. Countries secured enough gold reserves to support this value. The history of the gold standard in the United States began in 1900. The Gold Standard Act established gold as the only metal for redeeming paper currency and set the value of gold at $20.67 an ounce.

Some of the biggest gold price news touched down in the 1930s. In 1934, Congress passed the Gold Reserve Act, which prohibited private ownership of gold in the US, while also giving Washington the opportunity to raise the price of gold to $35 per ounce. This lowered the dollar value, creating healthy inflation from coast to coast.

In 1937, FDR slashed government spending to reduce the deficit, which reignited the Depression. By that time, the government stockpile of gold tripled to $12 billion, held at the U.S. Bullion Reserves at Fort Knox, Kentucky, and at the Federal Reserve Bank of New York.

In 1944, the major powers negotiated the Bretton-Woods Agreement, making the U.S. dollar the official global currency. American economists defended the price of gold at $35 per ounce.

In 1971, President Nixon ordered the Fed to stop honoring the dollar’s value in gold. That meant foreign central banks no longer could exchange their dollars for U.S. gold, which meant taking the dollar off the gold standard. Nixon was trying to end stagflation, a blend of inflation and recession. But, inflation was caused by the rising power of the dollar, as it had now replaced the British sterling as a global currency.

In 1976, unhinged from the dollar, gold soon shot up to $120 per ounce in the open market. 

It comes as no surprise then that by the 1980s, traders had bid the price of gold to $594 as a hedge against double-digit inflation, and he Fed ended inflation with double-digit interest rates but sparked a recession. Gold slipped to $410 per ounce and remained in that trading range until 1996 when it dropped to $288 per ounce in response to steady economic growth. Traders came back to gold after each economic crisis, such as the 9/11 terrorist attacks and the 2001 recession.

To reiterate, currency depreciation can very much influence the price of gold.  That depreciation happens when a country’s currency loses value in relation to one or more foreign currencies. Inflation and monetary policy, such as quantitative easing, are two causes of currency depreciation. 

Simply, inflation is the decrease in purchasing power of a currency over time. For example, between 2005 and 2015, the purchasing power of the dollar slumped by 20 percent. During this time, gold prices increased by over 169 percent. Since gold usually maintains or appreciates its value and currency is subject to significant losses in purchasing power, investors protect their portfolios with gold. When a nation’s currency is weak, investors turn to gold, increasing demand and prices.

The Canadian government also features a handy chart outlining how  gold prices over the last decade saw an impressive increase from US$859 in January 2009 to US$1,771.85 per troy ounce in September 2011. The price of gold in 2018 began at US$1,331 per troy ounce, peaked at US$1,335 per troy ounce in April, and finished the year at US$1,247 per troy ounce.

Often, the gold price will feel the ripple of changes in government policy or even entire government leadership. Some forecasts can be off, though. Prior to the 2016 US election, many analysts predicted that a Trump win would increase the gold price, perhaps even to $1,400. Their thinking focused on how a Trump victory would lead to widespread uncertainty, an environment in which gold tends to dwell quite nicely. 

What happened is that while the gold price had many influencing factors in the days after Trump’s election, overall it appears that its drop was largely the result of the strength in the US dollar and worries that the US Federal Reserve would raise interest rates in December.

“Mr Trump managed to sound quite conciliatory and presidential in his victory speech … There was none of the harsh rhetoric that we heard during the campaign,” Mitsubishi’s Jonathan Butler explained the day after the election, as InvestingNews.com reports. “This calmed the markets and helped boost the dollar, eroding gold’s gains.”

The same report found that with gold climbing over US$1,550 per ounce in fall 2019, concerned investors are seeking safe haven refuge due to heightened US-China trade tensions. The trade war has certainly made its way into the minds of gold investors worldwide.

“China is not only fighting to maintain its control over Hong Kong, but continues to fight the Americans over trade. In my opinion, the longer this goes on, the worse it is for the global economy, as China remains an integral piece of the financial puzzle,” Brian Leni, founder of Junior Stock Review, told reporters.

Speaking on gold’s positive price move in the fall, Brien Lundin, editor of Gold Newsletter, shared Leni’s sentiment on the rally, telling INN, “Right now, the primary drivers for gold have been the US-China trade dispute and the explosion in negative-yielding bonds worldwide.”

But on where the price of gold is heading in light of the tariffs war, the market has basically reversed about half of the gains in gold since that announcement on the Chinese tariffs, Kitco News writes. “Investors think Trump’s bark is worse than his bite, and they don’t think it’s as serious. People enjoyeda rebound in stock markets and people took profits in gold.” 

Citigroup is also bullish on the future of gold prices. “Equity markets continue to look vulnerable, especially given the deeper inversion of the U.S. yield curve,” Citigroup said. “Sometimes the ratio between asset classes is too hot. Sometimes too cold. But sometimes the chart signals ‘Just right’.”

This boost in gold prices could inspire many people to consider selling gold. Gold.to helps simplify the process of selling your gold and ensures that you get a fair and accurate payout. 

Another Kitco News report predicted that 2020 will be an “extremely good year for gold and price of gold, with a rally mode coming next year, which we might see through to the end of 2019 and in the first few months of 2020.”

In September 2019, RBC said it believed a new long-term floor price for gold has been established at $1,400/oz and that gold equities had lagged the gold price move. “At the current circa-$1,550 spot price, the North American senior gold producers have an average 33% return to our valuations, the intermediate producers a 38% return and the junior producers a 63% return. This suggests to us that there are opportunities for fundamental investors to achieve attractive returns investing in gold equities,” it said, according to the Mining Journal

You can always use Gold.to’s live gold price ticker if you’re curious about the price of gold in both Canadian and American currencies, as well as both figures for an ounce of silver. 

Also, there may come a time when you talk to a gold specialist on selling your precious metal or gold jewellery. That’s where Gold.to can help you, 24/7. Contact us if you want to get in touch with our precious-metals specialists to work with you on getting cash for your gold and silver.

LEAVE A REPLY

Please enter your comment!
Please enter your name here