- The recent banking crisis is pushing demand for gold significantly up.
- The price of the precious metal this year has already hit a high of $2,021/oz.
- More increases are expected for XAUUSD as economic stability is disrupted.
The price of gold has been on a steady rise in recent years, reaching an all-time high in 2021 and more recently in 2023. It is now close to surpassing the latest all-time high again this year. This trend is driven by a variety of macroeconomic factors, political issues, supply and demand dynamics, market sentiments and investor behavior.
On the macroeconomic front, gold prices are often seen as a hedge against inflation. When inflation rises, the value of paper money decreases while the value of gold increases. This makes it an attractive investment for those looking to protect their wealth from economic uncertainty. Additionally, low interest rates (despite the recent rises) have made it difficult for investors to find returns elsewhere and have pushed them towards gold as an alternative asset class.
The price of gold (XAU/USD) since April 2018
Political issues have also had an impact on the price of gold. In times of geopolitical instability or when there are fears about currency devaluation, investors tend to flock towards gold as a safe haven asset. This increased demand drives up the price of gold and can lead to significant gains in its value over time.
Supply and demand dynamics also play a role in determining the price of gold. Gold is a finite resource that cannot be produced at will; thus, if demand outstrips supply then prices will increase accordingly. Furthermore, when central banks buy large amounts of gold to diversify their reserves this can cause prices to spike due to increased demand from institutional investors.
More recently the banking crisis has pushed institutional and individual investors to use gold as a hedge against another collapse of the banking system. A similar situation to 2008 when several investment and retail banks failed with some rescued with public funds.
This year alone over 10 banks have failed with some of the highest profile collapses being Credit Suisse, The Silicon Valley Bank, Signature Bank and more worryingly First Republic Bank.
Gold has benefited from this situation with the trend now going upwards. Will it hit an ATH soon?
- Lucy Walker is a journalist that covers finance, health and beauty since 2014. She has been writing for various online publications.
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