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Analysis of the Reasons for the Recent Surge in Gold Prices

TOP1 Markets Analyst

Jan 16, 2024 17:07

In 2023, gold prices showed a strong upward trend, hanging above the level of $1,900 per ounce most of the time. By the end of the year, the price of gold broke through the $2,040 mark, setting a record high in half a year and attracting global attention. There are three main reasons for the surge in gold prices:

1. The Interest Rate Hike Cycle Ends

Over the past decade, interest rates and gold prices have had an inverse relationship. The global market knows that the monetary policy of the U.S. Federal Reserve (FED) is the biggest factor affecting gold prices.


When interest rates rise, gold has no interest income and can only rely on price differences to make profits. Therefore, investors will choose other high-interest assets, such as high-dividend stocks or bonds, which will push down the price of gold; conversely, when interest rates fall, investors will seek gold. Such as hedging tools, this will drive up the price of gold.


Currently, many institutions predict that the United States will end interest rate increases in 2024, or even switch to interest rate cuts, which will create an opportunity for gold to break through historical highs again, so the price of gold has risen recently. UBS further stated that gold is expected to reach the $2,200 level within the next two years.

2. Increase in Gold Reserves of Central Banks

Since 2010, 60% of the global gold reserves have been concentrated in the hands of seven major countries: the United States, Germany, Italy, France, Russia, China, and Japan. The gold reserves of these countries far exceed those of other countries. The International Monetary Fund is also a major gold investor in the world, with its gold reserves accounting for approximately 8 to 10% of the world's total.


The latest data from the World Gold Council shows that global central bank demand for gold continues to increase. In January last year, the net gold reserves of global central banks increased by 77 tons, more than double the same month in 2022. Among them, the People's Bank of China has increased its gold reserves for 10 consecutive months, which has played an important role in promoting the rise in gold prices.

3. Increased Demand for Safe Havens

"Hedging" is the key word. Faced with huge market pressures such as the COVID-19 epidemic, the Russia-Ukraine war, and the Israeli-Palestinian conflict, investors have sought the safe haven of gold.


Therefore, despite rising inflation and skyrocketing interest rates, reaching record highs, gold prices have remained unwavering and have bucked the trend. Some institutions even believe that the relationship between the U.S. dollar and gold has changed, no longer showing a negative correlation, but rising simultaneously, showing the strong performance of both.


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