In the face of uncertainty surrounding the world’s economy, the gold market is booming as investors look for a safe haven for their investments.
Over the past year, gold’s price increased by nearly a third, surpassing $ 3,550 per ounce on Wednesday, making it its highest ever price.
In the midst of a tumultuous geopolitical environment, some analysts anticipate that prices will continue to rise.
Why is gold currently so popular?
According to Tim Waterer, chief market analyst at KCM Trade in Australia, gold has long been preferred by investors during times of uncertainty or upheaval because of how consistently it is valued, especially in relation to stocks.
Gold is typically the go-to asset for traders in these circumstances, according to Waterer, who stated for Al Jazeera, “because the one thing that financial markets hate is uncertainty.”
In the wake of the conflicted international circumstances caused by the wars in Ukraine and Gaza and US President Donald Trump’s trade war, gold has historically generated only modest returns, but its price has increased sharply over the past two years.
Investors are also more favorable to gold because it can be held and stored physically, making it a better investment for them.
How does gold get bought by investors?
The main ways to trade gold are two.
The first is by purchasing bullion in the form of bars, ingots, jewelry, or coins.
Trading financial products is a second option.
Investors also invest in exchange-traded funds that monitor the price of gold, as well as contracts to purchase or sell it at a specific price.
Financial products offer institutions the advantage of not having to physically handle or store large amounts of bullion, despite the fact that it is simple to purchase.
Gold’s value is inversely related to the currency because it is typically expressed in US dollars.
Gold typically rises when the dollar falls, and vice versa.
How is Trump causing gold prices to rise?
When Trump announced his “Liberation Day” tariffs on a large portion of the world in April, which caused a period of significant uncertainty about the future of global trade.
Prices have increased more recently as a result of Trump’s ongoing attacks on the US Federal Reserve’s independence, which has long been seen above politics.
Trump has repeatedly pressed the central bank to lower interest rates in an effort to encourage economic growth, and he wants the dollar’s value to decline to lower in order to lower US export prices.
According to Kyle Rodda, a senior financial market analyst at Capital.com, either scenario increases the value of gold to investors.
According to Rodda, “gold loses appeal as interest rates rise because I can get more for my money by putting it in an interest-bearing asset like a bank account.”
“But if interest rates go down, I receive fewer of those interest payments, increasing the value of gold,” she says.
Other interest-bearing assets, such as bonds, also have this effect.
Foreign investors who trade in other currencies besides the dollar may also look to purchase more gold as the dollar declines, Rodda said. They will receive more value for their money as the dollar falls.
What is going on abroad?
Other factors have bolstered the case for gold, in addition to the economic jitters there.
Concerned about the worsening state of the public finances in the United Kingdom and Japan, the British sterling and the Japanese yen have fallen recently.
Instability in Japan’s ruling party has also affected the yen.
Because, unlike currencies, gold is seen as a good asset to protect against inflation risks because its supply is more finite in nature and is less prone to price dilution. Waterer argued that the same holds true for other nations, including Turkey and Egypt.
Foreign governments who need to store large amounts of the US dollar made from trade but who are less confident in government bonds as a result of Trump’s policies are starting to use gold, Rodda said.
A nation typically uses these funds to purchase Treasuries so that it can be safely parked and earned an interest rate on them, according to Rodda.
