Gold has traded in a range below $2,000 for years. However, it later rose to an all-time high around $2,450 in early May. Thus, the yellow metal showed its best performance since 2019. Moreover, according to a gold academic, gold’s rise is not over yet.
Gold not only held firm, but also hit new highs!
In a recent article, Xu Le, a lecturer at the Department of Strategy and Policy at the National University of Singapore (NUS) School of Business, explained his reasons for why gold is expected to rise in the second half of 2024 and 2025. The academic pointed out the increase in demand from central banks and the rise in economic uncertainty. In this context, Le shared the following assessment:
Many investors believe that gold, a versatile precious metal, has traditionally been inversely correlated with Federal rates. Because it is denominated in dollars, gold prices often fall when interest rates rise and the U.S. dollar strengthens. But this relationship seems to have become less predictable lately. Over the past few years, despite high Federal funds rates and a stable U.S. dollar, gold prices have not only remained firm but have soared to new highs.
“Gold serves as an important protection against inflation!”
According to Xu Le, this shows that while the US dollar’s impact on gold prices is “significant”, it is only one of a number of factors that play a very important role, such as inflation, monetary policy, supply and demand. The academic states that while global economic conditions are becoming more uncertain day by day, gold “comes to the fore by offering investors a shelter where they can protect their wealth in the face of economic uncertainty and increasing inflationary pressures.” In this regard, Le makes the following statement:
Gold acts as a hedge against inflation. This is an important reason why investors turn to gold in times of economic turmoil. During periods of increased inflation, the general price level rises and the purchasing power of fiat currencies decreases. In such times, gold comes to the fore and offers investors a shelter where they can protect their wealth in the face of economic uncertainty and increasing inflationary pressures. Gold is considered a safe haven, especially during turbulent times.
The endurance story of gold
cryptokoin.comAs you follow from , the US Federal Reserve is following an aggressive policy as of March 2022. Le also refers to the Fed’s aggressive interest rate hikes. The academic notes that this move is aimed at helping reduce inflation and support the US dollar. Therefore, he says, this would typically “reduce the appeal of non-yielding assets such as gold.” Based on this, Le makes the following comment:
Indeed, gold prices dropped to $1,664 in 2022. However, gold’s resilience story is also shaped by other dynamic factors such as the slowdown in interest rates, global economic uncertainty and geopolitical tensions. By the end of 2023, gold prices recovered significantly and reached $2,078. The average gold price was $1,940.54 for 2023. Thus, it showed an increase of 8% compared to 2022.
“Gold will continue its path in the second half of 2024 and 2025!”
The US Federal Reserve continues to struggle to meet its 2% inflation target. Therefore, it is postponing the interest rate cuts that the market expects. Things did not go quite as planned for the Fed in the intervening years. Le evaluates the impact of this situation on gold prices as follows:
Given this complex economic landscape and other uncertainties, the gold price is expected to remain stable in the near term. Looking ahead, the potential decline in interest rates could see gold prices rise once again. Investing in gold is a prudent strategy for those who want to fight inflation and diversify their investment portfolio. As a safe haven, gold is expected to continue its impact by increasing its price in the second half of 2024 and 2025.
Central banks continue to buy the yellow metal!
Le notes that one of the most important factors shaping recent trends in gold prices is the increase in demand from central banks, “especially in the emerging markets of East and Central Asia.” He expresses his views on this subject as follows:
These regions led net gold purchases in the first quarter, according to a recent report from the World Gold Council. This is consistent with the 2023 Central Bank Gold Reserves Survey, which points to a small strategic shift towards greater gold allocation in national reserves over the next five years.
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