The Rise of Gold Prices in 2024: A Comprehensive Analysis
At the beginning of the year, gold prices stabilized at high levels, partly due to ongoing macroeconomic uncertainties such as inflation, interest rate hikes, geopolitical tensions, and global financial turmoil. While some economies showed signs of recovery, global growth remained subdued, reinforcing gold’s role as a safe haven for investors.
Central Banks
One of the most prominent trends this year has been the significant increase in gold purchases by central banks.
In fact, these purchases have reached the highest level in over 15 years, highlighting the important role gold plays in central banks’ strategies to diversify their currency reserves.
Central banks are increasingly seeking to reduce their dependence on the US dollar and other fiat currencies, especially amid concerns about the long-term stability of these currencies. Gold, as an asset without counterparty risk, has become an attractive component in their reserves.
Geopolitical Uncertainty
The year has been marked by increased geopolitical tensions, particularly in the Middle East and Asia. Such events have boosted demand for gold, which is traditionally seen as a safe haven in times of uncertainty.
Meanwhile, central banks’ efforts to control inflation through interest rate hikes have not fully succeeded in dampening high inflation levels in many regions. This has further motivated central banks to increase their gold reserves as a hedge against inflation.
De-Dollarization Strategies
Several countries, especially those with little ties to the US, have intensified their efforts to reduce dependence on the dollar. As a result, investments in gold as a neutral asset have increased. This reduces the risks of being overly dependent on a single currency and enhances gold’s position as a global store of value.
Investment Flows and ETFs
Despite gold’s price increase of 22% this year, reaching a new record high of over $2,500 per ounce, flows into gold-related exchange-traded funds (ETFs) have been weak or even negative.
Investors have net sold $3.2 billion from gold-holding ETFs. The two major gold ETFs, Ishares Gold Trust and SPDR Gold Shares, have seen significant net outflows this year. However, SPDR Gold MiniShares Trust has experienced net inflows of over $500 million this year.
The modest flows into ETFs suggest that gold’s rise is primarily driven by other buyers, especially central banks. According to the latest data from the World Gold Council, total gold demand increased by 4% year-on-year in the second quarter, marking the strongest second quarter since 2000.
Conclusion
In conclusion, the rise in gold prices in 2024 has been driven by a complex mix of macroeconomic factors, geopolitical uncertainties, and increased purchases by central banks.