The gold price hunt for records continues. The yellow precious metal has recently reached new highs several times. The reasons are obviously complex – and even experts are surprised.
The gold price continues its record hunt unabated. The yellow precious metal is more expensive than ever. Last night, the price of gold temporarily rose to $2,304.95 per troy ounce, setting a new record – it was the fifth record high in a row. This morning, gold held at around $2,294 before slipping slightly into the red at midday.
Central banks are buying more gold than ever before
And yet: In the past three years, the price of gold has only managed to break through the $2,000 mark for a short time. But since mid-December, gold has hardly ever been below this level. Since the end of February alone, the precious metal has gained more than twelve percent in value. For comparison: In October 2023, gold temporarily cost $1,810.
Experts disagree about the reasons for the upswing. They don’t see a clear trigger. “The background to the mysterious and atypical price increase is still unclear,” writes Markus Blaschzok, chief analyst at the SOLIT Group. He cites, among other things, China’s strong physical purchases as a possible explanation for a deficit in the market, which makes gold more expensive.
As the latest data from the World Gold Council industry association shows, central banks continued to increase their gold holdings in February – for the ninth month in a row. The organization recorded unusually high gold purchases from China, India and Kazakhstan. By 2023, demand had already reached 1,037 tons, the second highest value since records began. Central banks can use gold to protect themselves against possible sanctions, as they can freely dispose of it, and strengthen their own currency.
Interest rate prospects positive for the Price development
In addition, the prospect of falling interest rates is seen as a driver for the gold rally. The majority is expecting a first interest rate cut from both the US Federal Reserve and the European Central Bank (ECB) in June. Yesterday, Fed chief Jerome Powell reiterated that the US monetary watchdog should begin cutting key interest rates “at some point this year”.
Lower interest rates are generally positive for precious metals, which do not pay interest. This makes them more attractive compared to other forms of investment such as bonds. In fact, the development of gold often depended on the development of interest rates in the past. Investors are betting that the price of gold will benefit from a turnaround in interest rates this time too.
What is unusual, however, is that real US interest rates remain high, which is usually disadvantageous for gold. In addition, the latest statements from central bankers that a change in monetary policy is imminent actually only confirmed the assumptions of investors. Many experts are therefore wondering what else is driving the record hunt.
Wars and risks
The market repeatedly referred to the latest developments in the Middle East conflict. After an air strike on the Iranian embassy compound in the Syrian capital Damascus, the geopolitical situation in the region recently worsened. This triggers greater demand for investments that are considered safe, such as gold. Added to this are the war in Ukraine and economic risks in China, which are increasing the demand for so-called “safe havens”.
For Commerzbank raw materials analyst Thu Lan Nguyen, both possible causes are not enough: “Some attribute the price increase to developments in the Middle East, others to dovish statements from Fed officials – neither explanation seems really convincing.” Normally, US interest rate expectations are the most important drivers of gold. However, because the uncertainty regarding the start and extent of the interest rate hikes has increased, “the increase in March – after all the strongest in a month in a good three and a half years – cannot be adequately explained,” said Nguyen.
Other experts therefore justify the development with the current “momentum” of gold and the chart technology. “Investors are buying because they expect that the momentum that has emerged could push the price even higher,” says Jochen Stanzl, chief market analyst at CMC Markets. Blaschzok also refers to follow-up purchases: “Speculators were once again aggressively active as buyers after the technical support at $2,155 was defended the previous week.”
What’s next?
Nobody can predict what will happen next with the price of gold, which is why private investors in particular should be careful. In any case, most experts assume that there could be a short-term correction in the overbought gold market due to profit-taking. But that doesn’t have to mean the end of the upward trend.
However, Commerzbank analyst Nguyen is rather skeptical about the further course of gold’s record rally: “We have doubts that the US Federal Reserve will initiate a pronounced easing cycle and therefore see the further upward potential for gold as limited in the medium term.” Nevertheless, peaks could be reached again at times, especially after interest rate cuts.
Meanwhile, in the wake of gold, the prices of other precious metals are also rising. The price of silver continues to rise and reached its highest level in around three years at $27.33 per troy ounce last night. The industrial metal copper also went up again, hitting a new 14-month high today with an increase of up to 1.3 percent to $9,380 per ton.