Are High Gold Prices Just a Blip in the Market

High gold prices have been a topic of discussion lately, and some people are wondering if they're just a temporary blip in the market. According to the World Gold Council, the price of gold has been volatile in recent years, with some fluctuations reaching as high as 20% in a single year.

The global gold market is worth over $3 trillion, with central banks and investors holding a significant portion of the world's gold reserves. This suggests that the demand for gold is strong, but the market is also subject to various factors that can affect prices.

Gold prices have historically been influenced by economic uncertainty, with investors turning to gold as a safe-haven asset during times of economic turmoil. As the article notes, the 2008 financial crisis saw a significant increase in gold prices, with the price per ounce rising to over $1,000 for the first time in history.

Several analysts believe the recent gloom on gold is temporary, citing ongoing drivers that strengthen gold.

These drivers include geopolitical tensions, concerns about the Chinese and European economies, soaring global debt levels, and ongoing central bank gold buying.

Analysts at Goldman Sachs expect gold prices to go beyond $3,000 per ounce by the end of 2025, based on their analysis of traditional structural and cyclical drivers of gold.

Goldman Sachs believes a gold price consolidation following the election could provide an attractive entry point to buy gold.

Central bank demand for gold is a key structural driver, driven by geopolitical risk that is expected to continue.

Investors are also seeking to hedge against the impact of rate cuts and growing fragility in the labor market, sustaining cyclical demand for gold.

Soaring indebtedness, potential rate cut plans of the Fed, and possible liberal tariffs are expected to boost gold prices, despite the recent decline.

Tariffs can generate economic uncertainty, which could catalyze higher gold prices, according to Matthew Jones of Solomon Global.

A weaker dollar can also push up the price of gold, as it makes the precious metal cheaper for international buyers, increasing demand and prices.

Consider reading: Federal Reserve Bank of New York Gold Vault

Gold prices can be volatile, but it's essential to take a step back and consider the bigger picture. Price drops are common and often temporary, so it's not necessarily a bad time to invest.

A drop from nearly $2,700 to under $2,600 in less than a month may feel substantial, but it's not as dramatic as it feels when looking at the long-term trend. Gold was priced near $2,600 as recently as September, so the price change isn't as dramatic as it feels.

The price is unlikely to fall back to exactly where it was, especially with inflation rising slightly in October compared to September's rate. This could be a mistake, particularly if you can invest now at a better price than what was widely available in recent weeks.

The New York spot price of gold has been climbing steadily, closing at just over $2,657 per Troy ounce on Tuesday, the highest recorded to date. This week's record high means that the price of gold has climbed hundreds of dollars per Troy ounce over the last year.

You might enjoy: Why Are Bitcoins so High

Price drops occur regularly, and it's essential to understand this dynamic when investing in gold.

In fact, price drops are common, and often temporary.

A drop from nearly $2,700 to under $2,600 in less than a month may feel substantial, but it's not as dramatic as it seems.

Gold was priced near $2,600 as recently as September.

Price drops in the gold market are inevitable, but gold tends to move in one steady upward direction.

This means that investors may be better served by acting now versus waiting for the price to fall much further.

The price of gold is unlikely to fall back to where it was, especially considering the recent surge in interest due to rising inflation. Inflation rose slightly in October compared to September's rate.

Waiting for a price drop to bring the price back to early 2024 levels could be a mistake, particularly if you can invest now at a better price than what was widely available in recent weeks. The price of gold has climbed hundreds of dollars per Troy ounce over the last year.

Check this out: How Does Inflation Affect Gold Prices

Tuesday's price of $2,657 per Troy ounce is the highest recorded to date, making a gold bar or brick weighing 400 Troy ounces worth more than $1.06 million today. This week's record high is a significant indicator of the price volatility in the market.

The price of gold is up nearly 30 percent year to date, outpacing the benchmark S&P 500's roughly 20 percent gain since the start of 2024. This rapid increase is a clear sign that the price of gold is unlikely to fall back to its previous levels.

Gold prices may feel like they're plummeting, but a drop from nearly $2,700 to under $2,600 in a month isn't as dramatic as it seems.

Gold has been priced near $2,600 as recently as September, so the price change isn't as significant as it feels.

The US interest rate policy could bring prices of gold down in the short term, at least temporarily. This is due to the possibility of the US Federal Reserve starting to cut policy interest rates in March, making the dollar more appealing to investors than gold.

You might enjoy: Us Gold Prices per Gram

If this happens, we might see a short-term drop in gold prices. However, numerous uncertainties such as geopolitical tensions, persistently high inflation, and the risk of recession could keep demand for gold high.

Central banks around the world, including those in Thailand, continue to want to add more gold to their reserves as a safe haven asset. This means that despite a potential short-term drop, demand for gold is likely to remain strong.

Thailand's gold market is steadily expanding, with overall gold consumption increasing over the last decade. According to YLG research, Thailand's average gold consumption from 2015 to 2022 was 63 tonnes.

Expand your knowledge: Will Gold Prices Go down in 2024

Gold's recent surge has sent its real price to its highest levels since July of 2020, reaching almost $740 per ounce as of April 2024.

This recent high has heightened interest in gold as a portfolio diversifier and an inflation hedge. The real price of gold is still below its early 1980 peak of approximately $840, but its recent growth is noteworthy.

The recent surge in gold's price has sparked renewed interest in its potential as an inflation hedge.

Related reading: Inflation and Share Prices

High gold prices can be a sign of inflation, as investors seek safe-havens during economic uncertainty.

Historically, gold has maintained its value during periods of high inflation, with its purchasing power actually increasing in some cases.

In the past, gold's price has risen significantly during times of high inflation, such as the 1970s and 1980s, when the US experienced high inflation rates.

A different take: Gold Prices during War

An inflation hedge should move with inflation, increasing when inflation rises. This means that if inflation goes up, the hedge should also go up.

The relationship between gold and inflation is not as straightforward as you might think. According to the article, changes in headline PCE inflation are not meaningfully correlated with changes in the spot price of gold, on average.

Gold's relationship with inflation is not stable and can be either positive or negative. There are times when gold's relationship with inflation is positive, and times when it's negative.

Broaden your view: When Should I Buy Gold

A rolling 36-month "inflation beta" estimated by regressing the gold spot-price monthly change on the monthly change in headline inflation over a moving 36-month window shows that the relationship is unstable and variable.

The gold-inflation "relationship", such as it is, is stronger during expansions, except for the Great Recession of 2007 to 2009.

For another approach, see: Gold Buying Rate Change from Yesterday to Doday'

Inflation stability is a complex issue, and its relationship with gold is not as straightforward as you might think. James Rich, a CFA, found that using annual data from 1972 to 2023, the relationship between gold prices and inflation is only 27% correlated.

Michael Weeks points out that physical gold is not a derivative, so there's no necessary statistical relationship between gold prices and other financial variables. This means that gold's value isn't directly tied to inflation or any other economic metric.

The US dollar price of gold has risen significantly over the past few decades, with an 82% increase over 10 years and a 496% increase over 20 years. In contrast, the return on TIPS (Treasury Inflation-Protected Securities) over the same period is much lower.

Gold's suitability as a store of value increases with your investment time horizon. If you're looking to protect your savings from inflation over a longer period, gold may be a more effective choice than other investments.

Neither CPI (Consumer Price Index) nor PCE (Personal Consumption Expenditures) is an adequate measure of inflation, as they only capture a narrow aspect of the issue. Inflation is a complex phenomenon that includes factors like financialization, rising economic fragility, and economic inequality.