Why is the price of gold increasing?
Gold prices have continued to rise to unprecedented highs in recent days, breaking new records each day. On September 26, the world spot price of gold was at $2,657.7 per ounce. Gold futures last traded at $2,681.4 per ounce. Overall, gold prices have increased by nearly 30% this year.
AP points out several factors behind the recent rise in gold prices.
Interest in buying gold typically comes at times of uncertainty — such as potential inflation concerns and the strength of the US dollar, which prompt some to seek alternative places to park their money. Gold also surged in the early days of the COVID-19 pandemic.
One source of instability today is geopolitical tensions – which have escalated in recent days with deadly Israeli air strikes in Lebanon. Ongoing wars in Gaza and Ukraine continue to stoke fears about the future around the world.
Last week, the US Federal Reserve cut interest rates by 0.5%, signaling more cuts before the end of the year. The move comes amid a tumultuous US presidential election year that could also play a key role in future economic policy.
Analysts also point to strong demand from central banks around the world. Joe Cavatoni, senior market strategist at the World Gold Council, noted last month that central bank demand for gold was well above the five-year average — reflecting “growing concerns about inflation and economic stability.”
Recent stimulus measures in China to boost consumer spending are also expected to boost retail investment, thereby boosting gold's performance, said Michel Saliby, senior market analyst at FxProSaliby.
Is gold worth investing in?
Proponents of gold investing call it a “safe haven,” arguing that the commodity can help diversify and balance your portfolio, as well as reduce potential future risks. Some people also find it comforting to buy something tangible that is likely to increase in value over time.
However, experts warn against putting all your eggs in one basket.
Neither retail nor institutional investors should be swayed by the “FOMO effect” (fear of missing out on the crowd) – noted expert Michel Saliby, explaining that people should not risk all their money just because they see others making profits. He advised investors to monitor the market and always have a clear risk management strategy.
If geopolitical tensions ease, Saliby expects gold prices to correct slightly, perhaps dropping by $50 to $80. But he remains bullish on the near term — he expects spot gold to soon surpass the $2,700 an ounce mark, as previously predicted for 2025, and possibly reach $2,800 or $2,900.
