Investors are buying up gold intensively. The golden bullion has confidently broken the $2,000/oz psychological level and brushed the all-time price record of $2,100. What makes investing in gold so hot again? And what are the forecasts for it?
Table of contents:
The Gold Market in Challenging Economic Times
Investing in gold has always been popular during hard times. But the point is that we have had uncertain economic times in recent years. First, the pandemic, then the war in Ukraine, and its economic consequences. There is high inflation, a cost of living crisis, and problems in the US banking sector.
In the fall of last year, gold had its longest series of declines in 150 years! The fall of 2022 was a time of sharp interest rate hikes in the United States. As a result, the world’s great capital preferred a strong US dollar and high-yielding securities to gold. Thus, billions of dollars flowed out of the gold market, and the prospects for the yellow metal were quite pessimistic. But only for a while.
Gold Cure for Pandemic, Inflation, and Turmoil Banking?
In the spring of 2023, important events reversed the trend. In March, a crisis broke out in the US banking sector, with the collapse of Silicon Valley Bank at the forefront. The European Credit Suisse Bank also had problems. These events have rekindled interest in gold as a safer investment. The last block of the banking domino added to this, i.e., the takeover of the Californian First Republic Bank by the giant JP Morgan (JPM.US). We see the effect of all this: the capital flight from American banks. This capital flowed toward the stock market, bonds, cryptocurrencies, and gold.
The US central bank also contributed to its decision to raise interest rates, which is probably the last one this year. This weakened the dollar, and the correlation, in this case, is very simple: gold goes up when the dollar goes down. All this happened in early May 2023, and we saw an immediate reaction in the gold market.
Gold Price 2023 Close to Record
The all-time record for gold prices was set in August 2020, when it was $2,077/oz. The price of gold approached this record recently, from May 3 to 4, 2023, and for a moment exceeded $2,070/oz. Today, May 15, SimpleFX’s investors are buying up gold for $2,020/oz.
Gold also appreciates the wave of fears of a global recession. In Europe, the probability of a recession is calculated at 50%, and in the USA at 30%*. Bloomberg analysts note** that this situation promotes gold, which is outperforming other commodities this year, such as silver (XAGUSD).
Gold Resources In National Vaults
The world’s central banks also drive up the price of gold as they buy the precious metal in abundance as part of their reserves. They were abandoning the politics of the early 2000s when gold was sold from national treasuries. Gold was even called a “barbarian relic” by John Maynard Keynes. Currently, every fourth gold bar purchased goes to national vaults. The United States has the world’s largest gold reserves, with over 8,000 tons. Asian countries, especially China, have a constant appetite for gold. The central bank of China gained 25 tons of ore in April 2023.
Investors Are Buying Up Gold Intensively. What Are Prospects For Gold 2023-2024?
The yellow ore may continue to rise in price, predict the analysts of the Swiss bank UBS. This year the all-time record may be broken and the price of an ounce may reach $2,100. And this does not have to end the gold price increase. By March 2024, another $2,200 barrier may fall. No wonder why investors are buying up gold during economic turmoil. SimpleFX’s traders should also monitor gold prices in the coming months. It can turn out to be a golden deal.
*https://www.conference-board.org/research/economy-strategy-finance-charts/CoW-Recession-Probability#:~:text=Recession%20probability%20hovered%20near%20zero,year%20from%20that%20point%20onward.
**https://www.bloomberg.com/news/articles/2023-05-05/gold-nears-record-but-central-bank-whales-become-harder-to-spot#xj4y7vzkg
