The price of gold reached a historic high on Monday (4), driven mainly by rising expectations of interest rate cuts among investors.
The value of the yellow metal jumped by up to 3% in Monday’s trading, reaching $2,135 per ounce, surpassing the previous record of $2,072 set in August 2020.
In recent weeks, investors have become increasingly confident that the U.S. central bank has managed to control inflation through aggressive interest rate hikes and may start reducing borrowing costs as early as March next year.
Higher interest rates increase the yields on assets like U.S. Treasury bonds. However, when interest rates are low or falling, the demand for gold, which does not pay any interest, becomes relatively more attractive.
Geopolitical Reasons
Gold has always benefited from another factor: a deep sense of global unease. This may be the most dangerous moment the world has seen in decades.
Investors typically see the metal as a safe haven, as it is a tangible and scarce asset that, in theory, retains its value. The price of gold has risen 10% so far this year.
A more ‘tense’ world has encouraged central banks in emerging markets to stockpile the precious metal. According to the World Gold Council, central banks in emerging markets bought an average of 473 metric tons (521 tons) of gold per year between 2010 and 2021. But last year, they purchased 1,100 metric tons of the metal, and in the first three quarters of this year, 800.
Close to a quarter of all central banks stated in a survey published in May that they planned to increase their gold reserves in the next 12 months.
According to that old economic law, the higher the demand, the higher the price.
Source: CNN