Gold has been this year on a remarkably upward trend, reaching a record-breaking price last Friday; and experts think it could keep climbing. So far in 2024 the yellow metal has rocketed by around 20%, evidencing growing interest in safe-haven assets as global economic uncertainties loom.
Ole Hansen, head of commodities at Saxo Bank, points out that gold’s rise began in earnest last October when it was worth $1,810 an ounce. Now it is nearly $2,500/oz. To put that into perspective: those heavy bars of gold you see being stolen in films are now worth over $1m each.
Factors behind gold’s popularity
Potential Federal Reserve rate cuts
Investors are closely watching for signals from the US central bank about what it might do next.Most recent data on consumer prices suggests inflation is cooling while unemployment rates are rising, leading many to speculate the Fed could reduce interest rates. If the market starts to price in such a significant rate cut say 0.5 percentage points analysts reckon gold could roam higher still. Lower US rates tend to mean weaker bond yields and a softer dollar, driving investors towards bullion as a haven.
Geopolitical uncertainty
From Ukraine to Syria via Hong Kong and the South China Sea, the world seems to be a messier and more dangerous place these days. At times like these investors typically buy perceived safe havens such as gold. As Mr Hansen notes: “Both presidential candidates [in the US] are looking at massive amounts of spending which can only increase national debt.”
Chinese growth concerns
China’s lacklustre economy has prompted its citizens to buy up gold as a hedge against an uncertain outlook for growth. Fears about property and currency devaluations have driven increased demand for wealth protection through bullion.
Central banks’ gold buying
It’s not just Chinese investors who are adding to their gold holdings, central banks around the world are also buying in big numbers. China’s central bank bought 60,000 ounces of gold in April, marking the 18th straight month of net acquisitions. Mr Hansen notes that with tensions running high between America and its rivals, central banks want to diversify away from the US dollar but find few alternatives as deep and liquid as gold.
In a recent note, the World Gold Council highlighted how central banks in countries such as China, Turkey and India have been driving global demand for the precious metal. In Q1 this year, global central banks bought 290 tonnes of gold the strongest start to any year on record.The WGC said emerging-market central banks were leading this trend as they sought to diversify their reserves away from the greenback.
Smaller nations such as Kazakhstan, Oman, Kyrgyzstan and Poland have also joined the gold-buying spree among official bodies.This shift in strategy is driven by politics and a desire to reduce exposure to US dollar-related risks.
Where the US Dollar Stands
Buying gold like this could mean big things for the US dollar in the future. Though it is currently doing well, if the value of this currency were to keep going up for an extended period of time, it might lose its place as the most widely used one on Earth. If that happens and people start seeking other options on a global scale due to overpricing, then all around finance will be changed forever – according to Allianz financial experts.
Gold’s popularity carries a wider economic and geopolitical significance. When everything glitters with instability gold is getting more and more attention as a valuable asset not only for governments but also individuals who look for some stability during uncertain times.
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