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It’s been hard to miss the headlines all across the news about record gold prices. Recently, gold has peaked at over $2,200 an ounce, well surpassing the previous record set only a few months ago in December 2023 of $2,063. Looking at historical charts, gold has been on a slow and steady rise not only in the last few months, but for the last few years and more. There are many different reasons for gold’s record high price. In this blog post, we will delve into the five main factors which have driven gold to an all-time high price.
1. Global economic influence
One of the primary drivers behind the surge in gold prices is worldwide economic uncertainty, driven by the wars in Ukraine and Gaza. Because gold is a safe-haven asset, turmoil around the world increases demand for gold. The price of gold per ounce is directly influenced by the supply and demand of the metal. Those in countries affected by war and political instability are always wondering what will happen to their own currency. The US Dollar has been strong for decades, but in other countries it’s the opposite. Many would rather hold a safe and stable asset such as gold instead of having money in the bank.
The leaders of these very countries understand this well, and the countries monetary policies themselves are one of the reasons gold has gone up so much. Individual investors do have a small effect, but China alone has increased its gold holdings by over 6.5 MILLION ounces in 2023. This equates to over 14 billion US dollar’s worth of gold in only one year. There are talks of a Chinese invasion of Taiwan possibly in 2024, and stocking up on gold in the preceding years is a logical precautionary step as another war around the world is likely to continue gold’s steady rise. Looking at a gold price forecast, it would make sense that most large institutional investors predict gold to go up in the coming year.
2. Inflation rates
Although inflation has since gone down to around 4%, the extremely fast rise to over 8% helped drive the price up all throughout 2023. Gold’s intrinsic value tends to hold steady as fiat currencies around the world lose purchasing power. Historically, gold has kept pace with inflation even with the recent surge, demonstrating the solid hedge precious metals provides against these tumultuous times. The Federal Reserve has stated they want to continue to try and lower the inflation rate, but this will not come without significant repercussions and consequences. As they try and lower inflation, it’s very possible we could be thrown into another recession, which in turn would be another reason for gold to go up.
3. Central bank policies
After the 2008 recession, we began increasing the amount of dollars the Federal Reserve was printing. Many thought the increase was far too large, but little did they know it would be completely dwarfed by the amount of money printed starting in early 2020. The overwhelming majority of all the money ever printed in the history of the United States has been printed in the last 4 years. Central bank policies around the world have directly influenced what the price of gold is today. In the inevitable recession that is to come in the near future, it is highly likely that central banks will increase the monetary supply even more than the meteoric rise that has already occurred. Many experts’ analysis of gold prices in the future have predicted this to be a major factor.
4. The US dollar
As the world’s reverse currency, the US dollar itself has a significant impact on the price of gold. Historically, as the US dollar has increased in purchasing power, gold will go down, and vice versa. This trend has lasted for decades and has a strong correlation in both directions. In the last two years, however, the dollar has stayed relatively steady in relation to the other world’s currencies, yet gold has continued to go up slightly, bucking this trend. There are many who predict the US dollar to be on its way out, with BRICS nations, led by China, pushing for a new world's reserve currency. Regardless of if they succeed or not, it has shown weakness in the dollar’s dominance and a possibility of its decline in the near and far future.
5. Industrial demands
Although not as large of a factor in the gold price history, there are industrial demands that do drive the price up and down. Every ounce of gold that is taken out of the ground gets harder and harder to access. The easily accessible gold around the world has been long dug out, leaving only remote and costly dig sites to produce new material. Industrial demands are increasing, driven by electronics, medical devices and jewelry. With demand continuing to rise and production getting costlier, gold price prediction charts show a continuation of the recent rise.
So, when is the right time to buy gold?
What will happen in the future is never known for certain, and it’s important to assess all the different factors and possibilities when deciding whether to invest in gold or take profits with a record high gold price. Like the stock market, historically, investing when prices are at a record high still produces strong returns in the long run. A short-term pullback is very possible, but gold will continue to be a safe, responsible investment for many years to come. If the world powers and dominating countries cease all conflicts, and we enter a prolonged era of peacefulness, then gold could certainly plummet, but with how things seem today that is hard to imagine any time soon.
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