Why is the price of gold hitting record highs?
The gold price is above the $2,000 per ounce mark for the sixth day in a row amid a US economic slowdown and a decline in the dollar’s value. The banking crisis and fears of an economic recession are once again putting the ultimate safe-haven asset in investors’ sights.
Gold prices have been driven to record highs by the weakening dollar after US inflation data for March fell short of expectations. Year-on-year inflation came in at 5 per cent, compared to the 5.2 per cent expected, leading to bearish moves in the foreign exchange market and a decline in Treasury yields on expectations of a pause in interest rate hikes.
The slump in US manufacturing activity – the lowest level in three years – and tighter credit conditions were the other two factors contributing to the low Treasury yields. Ironic, that many depositors withdrew money from their accounts because of the low interest paid by banks, to get more yield by investing in Treasury bonds. This explains, in large part, the flight of capital into safer securities such as precious metals.
Moreover, concerns about contagion from the banking crisis, financial market volatility and geopolitical uncertainty have further heightened interest in gold, not only among investors but also among governments and central banks, which have already recorded net purchases this year that have not been seen for more than a decade. These figures follow the trend of 2022, when a record figure of 1,136 tonnes was achieved, the highest amount in the last 55 years.
This escalation in gold demand is also being reflected in the forecast of the quantities of gold coins to be minted by the world’s mints. Specifically, in Spain, the Spanish National Mint (FNMT) announced last February that the Council of Ministers had authorised the purchase of 40 million euros in gold to produce investment and collector gold coins, four times the amount of the two previous issues.
What will the gold price trend be like?
Although in the current economic context, gold establishes itself as one of the best options for protecting our savings over the course of this year, what are the forecasts for the medium and long term? Leaving aside possible one-off volatility, will the price of gold continue to rise? What are the experts’ forecasts?
Firstly, it should be noted that the price of precious metals is influenced by a number of factors such as supply and demand or the economic and geopolitical context. Also, unlike stocks or bonds, precious metals do not generate passive income but are considered safe-haven assets in times of economic uncertainty. Therefore, their future value will depend on this premise.
UBS analysts note that “gold has a tendency to rise when the US dollar weakens, and the downside risk to the US currency has increased along with the money market’s assessment of the Federal Reserve’s rate cuts”. Although some short-term volatility is to be expected, they foresee “the precious metal reaching $2,100 by the end of the year, and $2,200 by March 2024″.
Likewise, Bank of America advisors agree with UBS, predicting that gold could appreciate by a further 10% by 2023. Even so, some experts are much more optimistic: Robert Kiyosaki, the well-known investor and financial guru, has predicted $3,800 per ounce of gold by the end of 2023, and Juerg Kiener, CEO of Swiss Asia Capital, believes that the price of gold could reach $4,000 per ounce by the end of this year. So it seems clear that although we do not know what the next crisis will be, analysts and the upward trend in gold are predicting that bad weather is coming.
Protecting savings with physical gold has been one of 11Onze’s main contributions to its community, and now the range of products is expanding. This is why, in the face of volatility, still high inflation and the growing crisis of confidence in the banking system, gold is once again strengthening its position as a safe-haven asset. Discover Gold Seed at Preciosos 11Onze.
The State expects massive demand for gold coins3 min read
On 21 February the Fábrica Nacional de Moneda...
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