By Jasmine Horsey
LONDON—After three bearish years, gold’s 25% year-to-date price increase has pushed its long-term fans to predict a sustained bull run.
Whether they’re right could depend on whether central bank action boosts inflation, which has historically been positive for gold. It may also require the economic and geopolitical clouds to linger. Meanwhile, some analysts are nervously eyeing the speculative investors that have built an unprecedented position in gold that adds a fragility to its current gains.
The precious metal has recently shined as a gloomy global economic outlook on factors ranging from China’s slowdown to Brexit, has boosted the fortunes of haven assets. The U.S. Federal Reserve has also played its part, refraining from the sort of rate rises that would boost the dollar and also make it harder for gold to compete with interest-bearing securities.
But unless consumer prices start to rise—and they haven’t budged in much of the developed world despite years of trying—those gold bets could sour.
Gold is typically viewed as a hedge against inflation. Analysis from TD Securities shows that gold gained at an average of 24% annually in periods of high inflation stretching back to the 1970s.
Many analysts and investors see gold extending its bull run.
“This is the beginning of something that will last for years,” said Joe Foster, fund manager at VanEck Associates.