Above the clouds. That’s the level the price of gold has reached in recent weeks. An ounce touched 2,500 dollars in mid-August for the first time in history. Since then, it has stayed in that range, smashing new records week after week and hitting as high as 2,560 dollars per ounce. At the close of this edition, futures traded around 2,530 dollars, with gains of roughly 20% year-to-date.
There are several factors behind this latest surge that go beyond gold’s traditional role as a safe-haven asset during economic uncertainty. Among them are the anticipated federal funds rate cut by the U.S. Federal Reserve later this month and geopolitical tensions that have pushed central banks to accumulate this metal since the start of the Ukraine war.
“Both precious metals and those with industrial use have attracted strong investor interest in the first half of the year. Gold and silver led the gains as demand from Asian investors rose, even as China’s equity markets disappointed. Now prices for gold and silver have stabilized at higher levels as markets price in rate-cut cycles by the United States in the coming months,” notes George Cotton, commodities portfolio manager at J. Safra Sarasin Sustainable AM, in a recent press briefing.
Furthermore, with rising tensions between the United States and China, and sanctions on Russia following the 2022 invasion of Ukraine, central banks have stepped up purchases of gold as a monetary reserve asset. “In recent months there has been a marked uptick in central bank demand for gold. In 2022 and 2023, these institutions accelerated purchases to more than 1,000 tonnes per year, representing around a quarter of global demand. Supply, by contrast, has barely changed,” explains Samuel Pérez, an analyst at Tressis.
Various brokerages warn that with growing demand and tightening supply, gold prices may continue their ascent. “Central banks bought about 1,000 tonnes of gold, 20% of global demand, between 2022 and 2023. This pace persisted into the first quarter of 2024 and could have seismic implications. The gold market is not large enough to absorb such a move without substantial price increases,” says James Luke, a commodities fund manager in his latest briefing.
Uncertainty
The metal and the broader mining sector also serve to diversify a portfolio, given gold’s inverse correlation with other asset classes. The ounce’s price could be influenced again by new U.S. employment data and the Federal Reserve’s monetary moves. “When uncertainty rises, gold tends to rise. And this uncertainty likely won’t clear until November’s election in the United States and questions about conflicts in Ukraine and the Middle East,” explains Luis Garvía, Director of the Financial Risks Master’s program at Comillas ICADE.
In a cautious environment, gold acts as a safe harbor. “The metal trades near its five-year highs after rising more than 60% in that period, propelled by rampant inflation and ongoing conflicts. Yet price gains have moderated, and wars appear contained. Still, there is a persistent fear that another major crisis could erupt, even if nothing is happening at the moment,” says Víctor Alvargonzález, Head of Strategy at Nextep Finance.