Dylan Lobo: why gold could revisit 1980 and burst $2,000

Capital Economic’s Julian Jessop underlines the impact this could have on the gold price: ‘The global financial crisis has left serious doubts about the creditworthiness of governments and financial institutions that underwrite paper assets. At the very least, interest rates are likely to remain very low in the advanced economies, thus minimising the opportunity cost of holding an asset like gold that does not pay any income.’

Additionally Jessop does not expect quantitative easing to come to an end anytime soon, which leaves gold firmly established as a mainstream financial asset. This is substantiated by the fact that banks became net buyers of the precious metal last year for the first time in 21 years with the continued rapid growth in emerging economies such China and India reinforcing demand.

And even if the Middle East crisis does pass by soon, Jessop believes there are likely to be plenty of other financial shocks which could drive the price of gold higher.

His favourites include the fall-out from fiscal crisis in debt-burdened Japan, the rising threat of a US-China trade war and constant doubts over the future of the euro. He also points out that if inflation fails to take off the havoc caused by deflation would be just as supportive for gold.