GOLD
Gold is a precious metal that has long been valued due to its rarity and its beauty. Throughout history, gold has been used as a medium of exchange, a symbol of power, or just as a practical way of preserving wealth. The commodity continues to be used in jewelry and even in electronics. Gold remains the ‘safe-haven’ instrument of choice for both traders and for many around the world who don’t trust that their nation-state’s currency will maintain its value. History shows that gold will maintain its value.
- GOLD AS A SAFE-HAVEN INSTRUMENT VS. HIGHER-RISK INVESTMENTS
Gold is widely recognized as a safe-haven instrument. During times of economic uncertainty and geopolitical instability, investor turn to gold. While crude oil or palladium are seen as volatile instruments that experience large price swings in a short period of time, gold tends to retain its value. The recent surge in gold prices can be attributed to:
- Geopolitical Tensions: The conflicts in Ukraine and the Middle East have created an atmosphere of uncertainty, prompting investors to seek the security of gold.
- Economic Instability: The trade war, inflation concerns, and fluctuating economic indicators have made gold an attractive option for preserving wealth.
- Global Fear of Escalation: Potential confrontations involving global superpowers further exacerbate fears, boosting the demand for gold.
- GOLD: FACTORS THAT COULD INFLUENCE PRICE MOVEMENTS
During times of conflict or global instability, investors often turn to gold as a safe-haven instrument. Events like wars, political unrest, and economic sanctions can drive up demand, affecting gold prices.
The relationship between interest rates and gold prices is crucial - lower rates make gold more attractive, while higher rates could shift interest toward income-generating instruments, reducing gold demand.
Supply and demand apply to gold. Factors like mining production affect supply, while consumer interest in jewelry and technology drives demand.
Economic indicators such as inflation, GDP growth, and employment data could impact gold prices. Positive economic data could potentially lead to lower gold prices as confidence in traditional investments grows, while negative data could potentially drive investors toward gold.
- INTEREST RATES: FEDERAL RESERVE INFLUENCE ON GOLD PRICES
The Fed is essentially the central bank of the United States. Since the dollar is considered the world’s reserve currency and most of the world’s commodities and metals are priced in dollars, the Fed plays a central role.
The Fed’s interest rate policies could play a crucial role in gold prices. Lower interest rates could reduce the possibility cost of holding non-yielding instruments like gold, making it more attractive. When the Fed cuts rates, borrowing costs decrease, and economic growth could be stimulated.
Conversely, higher interest rates could increase the cost of borrowing, potentially slowing economic growth and reducing inflation. This scenario could make interest-bearing instruments more attractive than gold, leading to a potential decrease in gold prices.
- CURRENT GEOPOLITICAL FACTORS INFLUENCING GOLD PRICES (TRADE WAR)
The trade war is perhaps the most important factor driving gold prices higher, amid deep fears and uncertainty about the global economy. When the US imposed tariffs in February (which were reciprocated) upon countries such as Canada, Mexico and China markets grew concerned that company profits would be hit. The fear is that inflation could rise and economic growth could slow. For many, the best option in unstable circumstances is to turn to the precious metal, which sends gold prices higher.
- CURRENT GEOPOLITICAL FACTORS INFLUENCING GOLD PRICES
In recent days, geopolitical instability has returned to the Middle East. In March, Israel launched attacks that reportedly killed over 200 Palestinians, alleging that Hamas is still holding Israeli hostages. The US also launched attacks against the Iran backed Yemeni Houthis that were attacking Red Sea shipping traffic. Just days earlier, the US warned that Iran must agree to a nuclear deal, or the situation could be addressed “militarily”. The ongoing war in Ukraine remains an issue, but the US is attempting to organise a ceasefire.
Additionally, tensions between the US and China over Taiwan and the South China Sea remain critical.
Conclusion –
In the current geopolitical climate, gold is expected to stay a highly popular instrument. In mid-March gold prices surpassed $3000 for the first time, with many investment banks anticipating more growth. In these uncertain times, gold's position appears stronger than ever!