Like the metal itself, reasons to buy gold are malleable. Own the yellow metal for its untarnishable beauty, or as a store of value, or both. Jewellery is the largest stable component of demand. But when gold soars, as at present, bling starts to lose its zing. This can presage a price drop.
Demand for gold as an investment had outstripped purchasing for jewellery manufacture just three times in the past decade. That was until the last quarter. The switch suggests a speculative bubble is building.
Gold has rallied 27 per cent over 12 months, outrunning all other traded commodities in this Covid-stricken year. The push has been driven by anxious investors snapping up gold bars, coins and exchange traded funds. Jewellery retailing has meanwhile been obstructed by the closure of shops and postponements of weddings, a trigger for purchases particularly in India. These problems should be only temporary.