Price of Gold Surpassed the Historic Record from August 2020
December 4, 2023. On Friday, December 1, 2023, the price of gold closed at $2089.70 per troy ounce (31.1 g), surpassing the three-year-old record of $2072.50 from August 7, 2023. During today's Monday trading (December 4, 2023) in Asia, the price of gold even achieved $2135 per troy ounce. What influences the price of gold, and will we witness more records?
The Rise of Gold Since October 2023
It is interesting to note that in early October 2023, the price of gold was around $1800 per troy ounce. The decline in the price of gold at the beginning of autumn was largely influenced by the increase in interest rates by central banks aimed at reducing inflation.
Now we observe the opposite trend. The price of gold is rising primarily due to market expectations that central banks will begin to lower interest rates, possibly by the end of the first quarter of 2024. The market is led by declining official inflation figures. The question remains about how accurately official figures reflect the situation of an average consumer when making purchases and whether the "celebration" of declining inflation is premature.
However, this anticipated change in monetary policy is a key factor supporting the rise in the price of gold. Loose monetary policy (increased money supply) generally creates an environment where investors seek investments in assets, and gold becomes an attractive choice.
Behind the rise in the price of gold is also the purchase of gold by central banks and reducing dependence on the U.S. dollar, where the conflict in Ukraine showed that the dollar, as the world's reserve currency and dollar-based payment systems, can be used as an effective weapon (sometimes referred to as dollar weaponization).
Gold as a Safe Haven in Turbulent Times
Gold has always played a role as a safe haven during periods of economic and geopolitical turbulence. Current events, such as the conflict between Russia and Ukraine or tensions between Israel and Hamas, lead to market uncertainty and strengthen gold's position as a safe investment.
An often overlooked factor with the potential to significantly influence the price of gold is the enormous, rapidly growing debts that governments worldwide, including the USA, have accumulated and piled up even more during the COVID-19 pandemic.
These debts are currently very high, and repaying them in a conventional way (by collecting taxes from citizens, selling state assets) is hardly conceivable. A much more likely scenario is the "repayment" of debts through sustained currency depreciation or higher inflation, which speaks for gold.
Conclusion, Recession, Stocks
Currently, there is often speculation about whether the economy will enter a recession and whether the recession will be mild or deep. In English-speaking countries, there is often talk of a smooth landing – soft landing or, conversely, a hard landing.
Today, in times of economic troubles, central banks (and governments through their policies) usually rush to help in the form of reducing interest rates = positive for the rise in the price of gold. The possibility of so-called stagflation, i.e., economic decline accompanied by high inflation, is also not excluded. In that case, central banks would have their hands tied.
Gold has historically served as protection against inflation and currency devaluation. In the short term, the price of gold may correct after its recent rise. In the longer term, it can be assumed that the current record is just the beginning, opening the door to further increases in the price of gold.
The situation in the stock market is also interesting. While the price of physical gold is breaking records, shares of gold miners and traders in gold or precious metals, compared to 2020 when the previous record was reached, are significantly lagging behind. This could indicate that they are very undervalued.
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Based on the original Czech article: Cena zlata překonala historický rekord ze srpna 2020.