Gold price rises as global banks seek stability

Over the past 21 months, gold’s value has increased by 42%, largely due to relentless buying by central banks around the world amid global uncertainty. This trend is being driven by ongoing issues related to the COVID-19 pandemic and numerous geopolitical tensions that are leading investors to view gold as a reliable haven for wealth preservation.

As central banks diversify their portfolios away from the US dollar, gold continues to provide stability against dollar value fluctuations. This strategic diversification also protects economies from potential currency fluctuations associated with declining trade importance. In addition, gold strengthens a country’s monetary sovereignty by reducing its dependence on the US currency, creating a ripple effect on the global economy.

In 2023, the World Gold Council reported that central banks bought a record 1,037 tonnes of gold, making it the second-largest year of purchases in history. A survey by the council found that 29% of central banks intend to further increase their gold reserves next year. These purchases are due to economic uncertainty, low interest rates and geopolitical instability.

Falling interest rates are making the gold market more attractive. While fixed-interest investments appear less attractive, gold shines brighter in the eyes of investors. Current speculation about a possible interest rate cut by September is further increasing the attractiveness of gold.

The increasing inclination of central banks towards gold

Given unstable geopolitical conditions and unstable financial markets, demand for gold is expected to rise.

However, there is no guarantee that the price of gold will always rise. Inflation rates are declining and any strengthening of the dollar could have a negative impact on the price of gold. External factors such as political unrest or economic instability also have a strong impact on the value of gold. To avoid serious losses, regular market analysis and advice from professional financial advisors are recommended.

Despite the current conditions, Bank of America’s commodity strategist predicts that gold prices could reach $3,000 per ounce within the next 12 to 18 months. This increase could be due to reasons such as the Fed’s rate cut, significant investments in exchange-traded funds backed by physical gold, and an increase in clearing volumes by the London Bullion Market Association.

Several characteristics make gold more attractive, including its stability during inflation and financial crises, its usefulness in portfolio diversification, and its lack of default risk. The growing demand for gold in technical applications also continues to increase its value. Nevertheless, investors should keep in mind that the price of gold can be volatile and its return is not guaranteed, so any gold investment should be backed by thorough research and careful consideration.