Why does gold price increase?
Spot gold price has continuously set a new record, exceeding the threshold of 2,880 USD/ounce this week, closer to the important milestone of 3,000 USD/ounce.
Veteran Fund Manager Adrian Day - CEO of Adrian Day Asset Management - said that this is only the beginning. "I will not be surprised if the gold price reaches 3,500 - 4,000 USD/ounce in the next 12 months," he told Kitco News.
“Gold is increasing even when the dollar is strong. When the green is weakened, we can witness a stronger breakthrough ” - the expert said.
According to the latest report of the World Gold Council (WGC), global gold demand reaches a record of 4,974 tons in 2024, marking the third consecutive year of central banks to buy more than 1,000 tons.
The countries that buy the most gold include China, Poland and Türkiye, in the context that these countries want to diversify reserves from the dollar due to concerns about economic and geopolitical risks.
Adrian Day considers this as the main factor that promotes the power of gold. “The biggest motivation for gold price in the past two years is central banks. They are reducing the proportion of USD in foreign exchange reserves. This trend does not slow down but is increasingly accelerating ” - he said.
Not only central banks, global investors are also considered gold to be a shelter before economic instability. US -China trade tensions are escalating after US President Donald Trump imposed new taxes to Beijing, causing China to respond. The risk of long -term trade war, along with the possibility that precious metals are also imposed on taxes, shook the market, pushed the gold interest rate in London to 12% - signs of the scarcity of supply In the short term.
“Gold is a fence against currency chaos, whether it is inflation, defeat or recession. Currently, we are facing all three factors ” - Day explained.
Wall Street has not participated, but is about to get in
Although gold price has increased by 27% in 2024, individual investors in North America have not yet participated in this rise. Gold ETFs, such as GLD, almost no new capital flows, while gold exploitation stocks have not been concerned by general investors.
"GDX and GDXJ have no day to record the net cash flow in January" - Day revealed.
“This is amazing. Gold exploitation stock prices have increased 47% in the past year, but gold and ETF investment funds have been withdrawal. ”
This loss of connection creates a special opportunity for investors to welcome the trend. History shows that gold mining stocks are often superior to material gold in the price increase cycles, but this time, they are being far away.
“The profit margin of gold mining companies is expanding because gold prices increases faster than production costs. Analysts always ask questions about costs, but no one mentions that exploiting companies are making more profits than ever ” - Adrian Day said.
Although some experts believe that gold has increased too fast and can be adjusted, Adrian Day believes that structural factors will continue to push the price higher. “Look in recent years, consumer price index (CPI), personal consumption spending (PCE) of the US are increasing. The stock market weakened, stubborn inflation, unprofitable public debt - this is an ideal scenario for gold to continue breaking down ” - the expert emphasized.
With global capital flows are moving rapidly and central banks store gold at a record level, Adrian Day clearly sees the road to make gold price higher.
“We are only in the opening. The curtain is about to pull up for the gold market, and most investors have not paid attention to it, ”he said.
