The structural driving force behind the forecast is the increased demand from central banks, while a cyclical lift would come from flows into exchange-traded funds as the Federal Reserve lowers interest rates, analysts believe.
Gold has reached new record highs this year, but has slightly declined following Trump’s victory in the presidential election, leading to a stronger dollar. Since gold is traded in dollars, a strengthening of the currency usually makes the precious metal more expensive for non-American buyers, which has a dampening effect on demand.
However, Goldman Sachs believes that gold can continue to climb even during Trump’s presidency. This is because his threats of tariffs could lead to trade tensions, which would benefit the metal as it is seen as a safe haven asset in times of turmoil.
Furthermore, rising concerns about the sustainability of US fiscal policy could also support the price, analysts believe, noting that central banks – especially those with large US Treasury reserves – may choose to buy more of the precious metal.
Gold is currently trading at around $2,590 on Monday. Last month, the metal peaked at $2,790.
The surge in gold prices is not a surprise given the current global economic uncertainties and geopolitical tensions. Central banks have been increasing their gold reserves as a hedge against volatile currencies and political risks. This trend is expected to continue as countries seek to diversify their reserves and reduce their reliance on traditional assets like the US dollar.
The Federal Reserve’s decision to lower interest rates has also played a significant role in boosting gold prices. As interest rates decrease, the opportunity cost of holding non-yielding assets like gold diminishes, making it more attractive to investors. This, combined with the ongoing trade tensions and concerns about the US fiscal outlook, has created a perfect storm for gold to thrive.
In addition to central bank demand and interest rate dynamics, the rise in gold prices can also be attributed to the increasing popularity of exchange-traded funds (ETFs) backed by the precious metal. Investors seeking exposure to gold without the need for physical storage have turned to ETFs as a convenient and cost-effective way to invest in the asset.
Looking ahead, the outlook for gold remains positive as long as the current economic and geopolitical uncertainties persist. With central banks continuing to bolster their gold reserves, interest rates expected to remain low, and trade tensions showing no signs of abating, the precious metal is likely to remain a safe haven for investors seeking refuge from market volatility.
In conclusion, the factors driving the surge in gold prices are complex and multifaceted, but the overarching theme is one of uncertainty and risk aversion. As long as these dynamics remain in play, gold is poised to maintain its upward trajectory, offering investors a safe harbor in turbulent times.