Roman gold bars dated to 375 AD. Ancient cultures around the world have valued gold for millennia. Photo courtesy of joyofmuseums.com
Many factors have an influence on the price of commodities, and gold is no exception. However, precious metals are unique in that there are reasons that may go beyond simple supply/demand economics.
The price of gold (which as of this writing is above $2000 oz., USD) is uniquely impacted by global economic conditions, interest rates, currency exchange and volatility of geopolitics.
In no specific order, here are a few reasons why gold prices are going up, and many people expect that it will continue to go up for years to come.
Economic Uncertainty
There is always uncertainty to some degree, but times of extreme volatility and uncertainty about the future of global markets tends to attract investors toward gold. When common stocks are on a downward trend, gold is considered a “safe haven” for people to hold their wealth for several reasons.
When economic uncertainty is high and stocks are plummeting, many investors turn to gold and other precious metals as a safe haven during these uncertain times.
Inflation Concerns
Current inflationary conditions in the economy are likely the biggest reason for the recent increases in gold price. As prices of goods and services rise and the paper currencies loose their value, tangible assets start to look more attractive to investors.
Inflation also causes a decrease in purchasing power. As the value of fiat currencies decreases due to inflation, their purchasing power also declines. This means that it takes more currency to buy the same amount of goods and services. Gold is no exception.
Central Bank Policies
Many of the world’s largest countries hold massive gold reserves. Depending on market conditions, countries may choose to buy or sell their reserves causing a direct impact on the supply and demand of precious metals.
As of 2021, the countries with the largest gold reserves, according to the World Gold Council, are:
Decisions by major countries to adjust their gold holdings can have massive impacts on the global gold market.
Global Tensions
Conflicts between nations and general political instability causes uncertainty, which incentivizes people to look for investments outside of traditional means. If people don’t trust the banks and don’t trust the ability to get their cash when they need it, they look toward tangible items that they can hold themselves. Precious metals have long been valued in times of general uncertainly.
There is broad consensus that the recent war between Russia and Ukraine, which is an indirect conflict with the Western world in general, is unlikely to end anytime soon.
