In recent months, gold has been gaining value, reaching new record levels. On Friday, gold price rose to $2510 per ounce and has mostly been maintained above $2500. Since the beginning of the year, the price of this precious metal has increased by over 21 percent, putting it on track for its best performance since 2020, and perhaps even for the best in 14 years. This rise is driven by a range of macroeconomic and geopolitical factors that favor investments in safe assets.
The most important reason for the increase in gold price is the prospect of a September interest rate cut in the US, which contributes to the weakening of the dollar and a decrease in US bond yields. At the same time, the CPI inflation rate in the US dropped from 3.0 percent to 2.9 percent, which further strengthens the position of gold as an attractive investment. Additionally, continuing geopolitical tensions such as conflict in the Middle East and war in Ukraine, increase the demand for gold.
Political uncertainty associated with the upcoming US election and the Trump-Harris rivalry also contributes to the increase in interest in gold. Markets fear potential political and economic disturbances, encouraging investors to allocate capital to stable assets. Moreover, a potential victory of Donald Trump may also influence the increase in gold prices, although markets are better prepared for such an event than in 2016. This might result in lesser volatility. Trump’s immigration policy, risky tariff strategies, looming trade wars with China, and repeated threats to withdraw from NATO remain significant threats.
There is a strong link between interest rates and bond yield which underlines the importance of gold: falling interest rates or the prospect of their lowering exert pressure on bond yields and increases the attractiveness of gold as a safe haven. Since late April, the yield of US Treasury bonds for ten years dropped from 4.7 percent to 3.9 percent. This weakens the dollar, making gold cheaper. The EUR/USD rate has increased by 3.4 percent since May, exceeding the level of 1.10. The markets expect that by mid-2025, interest rates will decrease by 2 percentage points, maintaining the attractiveness of gold in the medium-term perspective.
This year, gold has clearly outperformed Wall Street and is on track to achieve its best performance since 2020. Last week, it reached a record level of $2510 and has since stayed above the psychological boundary of $2500. Since the beginning of the year, the price of gold has increased by 21.3 percent, while, during the same period, the S&P500 index increased by 18 percent. Moreover, technical analysis tools indicate further potential increases in the price of gold. If the rally continues until the end of the year, 2024 could turn out to be the most successful year for gold in 14 years, provided the performance of 2020, when the price of gold rose by 24.2 percent, is surpassed.
Attention should also be paid to the role of central banks, which in recent years have significantly increased their gold reserves. In 2022 and 2023, central banks, including China and Poland, bought over 1000 tons of gold each year. Although the pace of these purchases slightly decreased in the second quarter of 2023, central banks remain a significant factor supporting gold prices.
In conclusion, if the current bull market in gold continues until the end of the year, 2024 may turn out to be the best year for this precious metal in over a decade. However, when investing in gold, we should always be aware of the risk and be prepared for a potential change in trend.
Paweł Majtkowski, eToro analyst in Poland
Source: https://ceo.com.pl/nowy-rekord-cen-zlota-czy-2024-bedzie-najlepszym-rokiem-od-ponad-dekady-64150
