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The price of gold has reached an all-time high, and experts are predicting that it could climb even higher due to a combination of factors.
What Happened: Gold prices have surged approximately 20% this year, reaching a record high on Friday. The spot gold price is now just shy of $2,500 an ounce.
Ole Hansen, the head of the commodity strategy at Denmark’s Saxo Bank, in a Monday note, stated that the price rally has been in an “uninterrupted rally” since October when gold was priced at $1,810 an ounce. A standard-size gold bar of about 400 troy ounces now costs over $1 million.
What’s Driving The Market Higher?
A potential Federal Reserve interest rate cut, following slower-than-expected July inflation data and higher unemployment figures, is a significant factor driving the market’s expectation for higher gold prices. Investors are eagerly awaiting Jerome Powell’s keynote at the Fed’s annual symposium at Jackson Hole, Wyoming, on Friday, for indications of the central bank’s next move.
Daniela Sabin Hathorn, a senior market analyst at Capital.com, wrote, “The question now is how big will the rate cut be?” A larger rate cut could lead to higher gold prices as a fall in US interest rates typically depresses bond yields and the greenback, driving investment into gold, which is internationally denominated in the dollar.
Geopolitical risks such as the wars in Ukraine, the Middle East, and the upcoming US presidential election are also boosting the appeal of gold, a traditional safe haven. In China, consumers are buying gold to preserve value amid a depressed economic environment, a property crisis, and a weak currency.
Hansen wrote, “Continued central bank demand amid geopolitical uncertainty and de-dollarization, and not least gold’s ability to offer a level of security and stability that other assets may not provide” would support the yellow metal.
Gold Outpaces Bitcoin Gains
Gold has also surpassed Bitcoin’s (CRYPTO: BTC) performance, indicating that cryptocurrencies may not serve as the effective hedge against lower interest rates, a declining dollar, and financial instability that Bitcoin proponents had anticipated. Over the past month, Bitcoin has dropped more than 10%, while gold prices have risen by 6% since mid-July.
"Gold is getting its moment in the sun, and investors are taking note," said Jason Goepfert, senior research analyst with Sundial Capital Research, reported Barron’s.
Why It Matters: Gold is often viewed as a safe-haven investment in times of economic and political uncertainty. The precious metal can also serve as a hedge against declines in the value of the U.S. dollar. This has been a key factor in the recent surge in gold prices, as highlighted by Barrick Gold Corp.’s CEO, Mark Bristow, who stated that the world’s geopolitical situation is the primary reason for the surge in gold prices, not inflation.
Meanwhile, Gold mining stocks have recently seen a significant rise in value. The VanEck Gold Miners exchange-traded fund (ETF) (NYSE:GDX), which includes holdings such as Newmont (NYSE:NEM), Agnico Eagle Mines (NYSE:AEM), and Barrick Gold (NYSE:GOLD), has increased by nearly 25% this year, according to data from Benzinga Pro. Typically, when gold prices rise, the profits and sales for these mining companies also surge.
Other ETFs such as SPDR Gold MiniShares Trust (NYSE:GLDM) and iShares Gold Trust (NYSE:IAU) have also gained over 21% this year.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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Photo courtesy: Michael Sutton via Flickr
