In 2024, it saw a strong increase, with the percentage increase in the first nine months of the year reaching 28.1% in US dollars, 27.2% in euros, and 28.3% in Swiss francs. At the annual level until the end of September, the increase reached 42.3% in terms of the dollar, which shows the strong performance of the precious metal against the global economic challenges.
These interesting numbers have investors wondering if gold has peaked or if a major correction is coming. Below we look at 5 reasons behind the continued rise in gold prices.
1- Did it reach the maximum height?
Despite these huge increases, gold has not yet reached its true peak. Although gold is trading at more than $2,675 an ounce, the inflation-adjusted price is still below the unreasonably high levels of 1980, and gold remains a solid investment.
At the same time, the way inflation is measured has changed significantly since the 1970s, making comparisons between current and past prices complicated. If the old method of calculation had been used, the inflation and the price of gold would have changed with much higher inflation than we see today. The US Bureau of Labor Statistics has made several major changes to the way inflation is measured since 1980, which directly affects estimates related to gold.
2- The role of central banks in supporting gold prices
Central banks continue to increase their gold reserves as part of their economic strategies. For example, India increased its gold reserves by 18.7 tons in the second quarter of 2024, indicating a growing interest in gold as a strategic asset. Likewise, many other central banks followed the same approach, strengthening gold’s position in global markets.
Surprisingly, gold reserves in the Central Bank of Poland have now exceeded those in the United Kingdom, reflecting a shift in the balance of economic power in Europe from the West to the East. The head of the Central Bank of Poland, Adam Glabinski, explained that their goal is for gold to be 20% of monetary reserves, which will strengthen the country’s economic situation and improve its financial stability.
3- The effect of low interest rates on gold
One of the main factors supporting the continued rise in gold prices is interest rate cuts. In September 2024, the US Federal Reserve cut rates for the first time since July 2019 by 0.50 percentage points, a move that had not occurred since January 2001 and September 2007. Traditionally, rate cuts raise prices gold, as investors move towards safe-haven assets like gold when yields rise.
Over the past few decades, each cycle of interest rate cuts has seen a significant increase in gold prices. For example, after the dot-com crisis at the turn of the millennium, gold prices rose 60%, and during the 2007-2008 global financial crisis, prices jumped 140%.
4- Weak demand among investors and its role in maintaining the rise of gold
Despite gold’s strong performance, demand for it by private and professional investors in North America and Europe remains weak. A study by Bank of America (NYSE:) in 2023 showed that 71% of financial advisors put less than 1% of their portfolios in gold, while only 27% invested between 1% and 5% This reflects weak public interest in gold compared to expected levels.
However, there is much scope for improvement in gold demand in this region. ETF markets have not seen a significant increase in demand, despite the strong performance of gold, which will add future opportunities for demand growth in this area.
5- The tight geopolitical environment is pushing gold towards another rise
Apart from economic factors, the current geopolitical situation plays a crucial role in supporting gold prices. The war in Ukraine and rising tensions in the Middle East make gold more attractive as a safe haven. As these conflicts continue, reliance on gold as a reserve asset is increasing in many countries.
These developments underline the importance of gold in global economic stability. As gold has surpassed itself as a reserve asset in central banks, it is now second only to American currency. However, the share of the dollar in global reserves is gradually declining, strengthening the position of gold as a strategic asset.
Predictions for future gold prices
With gold prices reaching over $2,700 per ounce over the past few hours, a deterioration in economic and geopolitical conditions is expected to dampen gold’s gains. Accordingly, the price of gold is expected to reach around $4,800 by the end of 2030, which is considered a conservative estimate due to the current developments mentioned above.
2024-10-18 22:55:00
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