Gold is breaking records once again. Where do we go from here?


Written by Philip Diehl

Mar 14, 2024

If you follow financial news, you probably know that gold has been on a tear recently, setting and resetting all-time record highs. Knowing why this is happening is crucial to understanding that this rally is just getting underway.

When did this latest gold rally begin, and what set it off?

It began October 7, 2023, when Hamas attacked Israel. Over the next 15 trading days, the closing spot price of gold rose by $173/oz., or more than 9%. This illustrates two of the most powerful drivers of gold prices: war and geopolitical tensions.

So it has been since the beginning of history: Gold has been, and is today, the go-to asset when war fears arise.

Gold’s price rally received a boost in early November 2023 when new economic reports suggested that the Federal Reserve could be ready to stop raising interest rates and might even consider cutting rates in 2024. On that news, gold surged $134/oz. over the following 15 trading days. Prospects for lower rates launched another $96/oz. leap in December and yet another $70/oz. surge in mid-February 2024.

Why would falling interest rates boost gold prices?

There are two reasons the expectation of falling interest rates boosts gold prices.

One: Lower interest rates make other low-risk assets, like U.S. Treasurys, less attractive. Treasurys and gold are considered the safest assets in the world, so when Treasury yields fall, demand for gold rises, and prices follow suit.

Two: When Treasury yields fall, global demand for Treasurys also falls. This causes the value of the dollar to weaken against other currencies. In other words, people who do business in other currencies can buy more dollars with their money, and since gold is sold worldwide in dollars, those folks can also buy more gold with each euro, yuan, yen, pound, or peso.

And what happens when gold gets cheaper in other currencies? People buy more of it.

When interest rates fall in the United States, the dollar weakens, setting off a stampede of buyers abroad—90% of whom trade in currencies other than the dollar.

Here’s an example: China is the biggest retail gold market in the world. In 2023, demand hit a record high in China as geopolitical tensions in Europe, the Middle East, and the United States, combined with a struggling Chinese economy, drove buyers to the safety of gold.

How much of the precious metal did the Chinese buy last year? 883 tonnes, according to the World Gold Council. That’s equal to 20% of all the gold in Fort Knox—all purchased in one country, in one year.

As the Chinese economy continues to weaken, tensions grow with the United States and its Asian allies, and the value of the dollar falls against the Chinese yuan, we can expect demand for gold to soar. And not just in China, but in India, too, as the dollar weakens against the rupee. Together, those two countries account for more than 65% of the total global demand for gold—so those markets matter.

What else is driving the gold rally? Central banks.

You’ve probably heard me talk about the value of gold in diversifying your portfolio. Diversification is crucial to protecting your assets against the unforeseen and the unforeseeable.

Guess what? Central bankers appreciate the value of diversification, too. They set a record by acquiring 1,100 metric tons of it in 2022, then almost matched that record last year. This comes to half a Fort Knox–worth of gold in only two years, and they’re buying at a similar pace in 2024.

Why are central bankers buying gold hand over fist? A recent survey by the World Gold Council found that portfolio diversification is among the top four reasons central banks hold gold, just behind gold’s performance in times of crisis and its role as a hedge against inflation.

In other words, central bankers—some of the most prudent financial players in the world—buy and hold gold for the very same reasons we at U.S. Money Reserve urge you to own gold.

I’m convinced this gold rally is just getting started. I hope you’ll call one of our dedicated Account Executives to learn more about the many benefits of owning physical gold today.


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