The price of gold has recently been on a real record run again. For the first time, it is above 2,500 dollars per troy ounce and has risen by a fifth since the beginning of the year. What are the reasons?
For some it is a safe haven – for others it has “no particular benefit and is unproductive”. The latter includes stock market dinosaur and star investor Warren Buffett, who does not think much of the shiny precious metal. Unlike stocks or government bonds, gold does not yield any returns.
Nevertheless, there is currently a real “run” on gold. On Friday, the price of gold on the London Stock Exchange climbed to $2,500 per troy ounce, the highest ever. Today, the precious metal reached a record high of $2,522.99. Since the beginning of the year, the price of gold has risen by more than 20 percent.
Investors expect interest rate cut in the US
Commodity analyst Carsten Fritsch from Commerzbank gives one reason for this in Economic Update on tagesschau24: “The most important driver is the expectation that the US Federal Reserve will begin cutting interest rates soon, i.e. in September, and that it will do so quite significantly.” The market is now expecting at least 25 basis points of interest rate cuts in September and around 100 basis points of interest rate cuts by the end of the year. “That is significantly more than was the case a few weeks ago.”
When interest rates on the capital market are high, gold is at a disadvantage as an investment because it does not yield any interest. When interest rates fall, the precious metal becomes interesting again as an investment.
A scary look into the Middle East
Added to this are the geopolitical uncertainties – especially the Middle East conflict. Many investors are increasing the proportion of gold in their portfolios out of concern about an escalation of the situation in the Middle East, says commodity expert Fritsch. “Gold as a safe haven and the tension in the Middle East are also a driving factor for the price of gold, because safe havens like gold are sought after in times of uncertainty.”
According to Commerzbank analyst Fritsch, it is not only private investors and large investors who have been stocking up on gold reserves for some time. Central banks, particularly in Asia, have also recently driven up demand and thus the price of gold.
Demand of Emerging markets
“On the one hand, the proportion of gold in the currency reserves of these emerging countries is still comparatively low – significantly lower than is the case in the industrialized countries. There is therefore a need to diversify and reduce the dollar share,” says Fritsch. “This contributes to the fact that the emerging countries have already bought gold at record levels in some cases over the last one or two years.”
And that is one of the reasons why the price of gold has been soaring for more than a year.
Investment legend Warren Buffett has his own interpretation of things. He once said that gold is basically about betting on fear. What motivates most gold buyers is their belief that the number of fearful people will increase. According to this, the equation would be: the more fear, the higher the price of gold.
