The price of gold continues the upward trend seen since the end of 2023 and continues to set record highs. In this context of high prices, is it still advisable to buy gold to protect our savings or to diversify our investments?

The price of old has gone up by 23% since the beginning of 2024 and its price remains at an all-time high of around 2,290 euros per ounce. While it is true that the reasons that make this precious metal the safe-haven asset of choice for investors are repeated over time, this current upward trend exceeds past performances.

After the strong monthly rise in July, gold rose sharply again in August and stood at 2,280 euros per ounce, up 3.6%. It also reached a new all-time high on 20 August, before declining only marginally at the end of the month.

Going into September, the gold price has lost some of its gains, but still remained comfortably above the psychological mark of $2,500 (€2,267) during Thursday’s European session.

Continued central bank demand for gold, a weaker dollar and global geopolitical tensions, as well as optimism that the Federal Reserve will cut interest rates this month, explain the recent price rallies.

On the other hand, the expected US Consumer Price Index (CPI) report released yesterday (Wednesday) shows that inflation continues to moderate, dropping four tenths during August to 2.5% y-o-y, while core inflation remains at 3.2% y-o-y, as expected. This dampens expectations of a large rate cut by the Fed, which both boosts the value of the dollar and may moderate demand for gold.

Will gold prices continue to rise?

Although the latest report published by the World Gold Council (WGC) acknowledges that the current macroeconomic environment is difficult to interpret due to a plethora of conflicting economic data, this macroeconomic uncertainty is reflecting positively on the gold market.

In this regard, it reports that activity in Options spreading positions (OSP) has been steadily increasing, approaching levels not seen since 2020 or during 2011 and 2013. This reflects investors’ willingness to hedge against changes in interest rates and the outcome of the upcoming US election.

‘Looking back over these periods, it seems that the triggers for an increase in OSP activity were related to one of two scenarios: a change in interest rate policy or risk events in the market. Today we face both,’ notes the WGC.

Analysts at ING Research, on the other hand, believe the expected Fed rate cut will push gold to new all-time highs, while the US presidential election in November will also continue to contribute to the gold metal’s upward momentum until the end of the year.

In conclusion, despite the price rise, gold’s ability to act as a hedge against economic volatility, its stability in the face of inflationary pressures and the increase in global demand are key factors that continue to reinforce its attractiveness as an investment and as a safe-haven asset. That said, its price can be volatile sometimes, so it is crucial to assess the risk we are willing to take and clearly define our investment objectives before making a decision.

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