Silke Mayr Gold prices reached record levels this week, driven by declining interest rates and increasing geopolitical tensions, reinforcing its status as a safe haven asset. As gold has outperformed the stock market since October 2022, Wall Street anticipates that this upward trend will continue.
This year, the price of gold surged to a historic high of $2,772 per troy ounce, marking an increase in six of the last seven weeks. With a year-to-date gain of approximately 33%, gold has outpaced the broader stock market, including the tech-focused Nasdaq 100, by about 10 percentage points. Since the stock market’s bull run began in October 2022, gold has delivered a return of 67%, compared to around 63% for the S&P 500, according to YCharts data. These impressive returns have made gold one of the most sought-after investments globally.
The largest gold exchange-traded fund (ETF), SPDR Gold Shares, boasts $78 billion in assets under management and has attracted about $5 billion in inflows over the past six months, according to ETF.com. Additionally, physical gold is in high demand; Costco frequently sells out of gold bars on its website, with estimates suggesting it sells up to $200 million in gold bars and silver coins monthly.
The current landscape is highly favorable for gold, and experts predict further gains ahead.
Central Bank Demand
Central banks worldwide have significantly increased their gold purchases in recent years. The World Gold Council reports that central banks acquired a record 483 tons of gold in the first half of this year, with Turkey, India, and China leading the charge. This surge is partly driven by countries seeking to diversify their reserves away from the US dollar.
Goldman Sachs indicated that the rise in central bank gold purchases—tripling since mid-2022—reflects fears surrounding US financial sanctions and sovereign debt. The situation has been particularly pronounced since Russia’s invasion of Ukraine in 2022, prompting countries to seek less dollar-dependent strategies, one of which involves increasing gold reserves.
Economist Mohamed El-Erian has emphasized the need for the US to monitor this trend, noting it indicates a shift among China and other nations towards exploring alternatives to the dollar-based payment system.
Geopolitical Uncertainty
Gold’s status as a safe haven stems from its historical stability as a store of value. Heightened geopolitical tensions—stemming from Russia’s ongoing conflict in Ukraine, escalating Middle Eastern conflicts, and China’s threats to Taiwan—have fueled investor interest in gold.
With soaring US debt raising concerns about the safety of Treasuries, traditionally seen as a secure investment, gold has emerged as a more appealing option. Bank of America noted that gold appears to be the last significant safe haven, prompting increased investment from both traders and central banks.
The Trump Factor
The potential for a return of former President Trump has also invigorated interest in gold, as his candidacy is associated with rising government deficits and growing debt. This scenario raises fears of inflation and challenges to the stability of the US dollar.
Economist David Oxley highlighted that concerns over fiscal irresponsibility and pressures on the Federal Reserve make gold an attractive investment. Even if Trump doesn’t win, anticipated deficits are likely to support gold’s upward trajectory.
Interest Rate Trends
Falling interest rates historically bolster gold prices. The World Gold Council noted that gold often rises significantly in the months following a Federal Reserve rate cut. With expectations for multiple rate cuts over the coming year, lower rates are likely to provide a supportive environment for gold prices.
Despite a recent increase in interest rates since the Fed’s first cut, with the 10-year Treasury yield reaching its highest level since July, gold prices have continued to rise. This suggests that investors are focusing on a broader trend of decreasing global interest rates as central banks, including the People’s Bank of China and the Bank of Canada, move to lower rates in response to economic conditions.