The Surge in Gold Prices: What’s Behind It?

Gold hits record high – 2 surprising reasons why

Gold continues to shine with the precious metal hitting a fresh record high – but there are two surprising and overlooked reasons why, says the CEO of one of the world’s largest independent financial advisory and asset management organizations.​

Nigel Green of deVere Group’s comments come as gold neared $2,300 an ounce in Thursday trading.

He says: “The surge in gold prices to unprecedented levels has captured the attention of investors worldwide. ​

“The common narrative attributes this surge to geopolitical tensions and expectations of interest rate cuts by the US Federal Reserve.​

“It’s certainly true that the Russia-Ukraine war and conflicts in the Middle East, have contributed to the uncertainty plaguing global markets. ​

“Investors traditionally flock to gold during times of geopolitical turmoil, perceiving it as a safe-haven asset that retains value even in turbulent times. ​

“Similarly, expectations of interest rate cuts by the US Federal Reserve diminishes the opportunity cost of holding gold, further enticing investors to enter the market.”​

But, notes the deVere CEO, beyond these well-discussed factors, two critical elements are often sidelined in discussions surrounding the surge in gold prices.​

“Firstly, the expectation among some influential traders and analysts of a reacceleration of US inflation is prompting some to increase their gold holdings. ​

“The core personal consumption expenditures price index, a key measure of inflation, rose by 2.8% in February, aligning with market expectations.” ​

Inflation erodes the purchasing power of fiat currencies, making gold an attractive hedge against currency devaluation. Traders who anticipate inflationary pressures to intensify, can be expected to turn to gold as a reliable store of value, driving up demand and consequently prices.​

“Secondly, China’s consistent accumulation of gold reserves for 16 consecutive months, as evidenced by Bloomberg data, has played a significant role in bolstering gold prices,” notes Nigel Green. ​

“China’s strategy of diversifying its central bank holdings to reduce reliance on the US dollar has led to substantial gold acquisitions. ​

“This diversification not only safeguards against currency volatility but also reflects China’s broader ambition to assert economic independence and influence in the global financial landscape. As China continues to bolster its gold reserves, it exerts upward pressure on gold prices, further fuelling the rally.”​

The “confluence of these factors has propelled gold prices to historic highs”, nearing the $2,300 threshold. ​

Looking ahead, the trajectory of gold prices remains intricately linked to the evolving macroeconomic landscape and geopolitical developments. ​

While geopolitical tensions and monetary policy decisions will continue to influence short-term fluctuations, other factors driving predictions of upticks in inflation and China’s gold acquisitions cannot be dismissed.​

Nigel Green concludes: “We see the momentum for gold to continue for the foreseeable future, as investors are reminded of its enduring appeal as a safe haven asset and as US economic rivals continue to move away from the dollar.”

Factors affecting gold rate

Economic Uncertainty:

Gold is often seen as a safe-haven asset during times of economic instability or uncertainty. When investors are concerned about inflation, currency devaluation, geopolitical tensions, or stock market volatility, they tend to flock to gold as a store of value.

Inflation Hedge:

Gold is considered a hedge against inflation. When inflation is expected to rise, investors may buy gold to preserve their purchasing power.

Supply and Demand Dynamics:

Limited supply and increasing demand can also drive up the price of gold. Gold production is relatively stable, while demand from industries such as jewelry, technology, and investment continues to grow.

Currency Fluctuations:

When the value of currencies fluctuates, particularly if major currencies weaken, investors may turn to gold as a more stable asset.