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Rising Gold Prices – Are Gold Prices Climbing the Wall of Worries?

Posted on: 12-06-2024

Rising Gold Prices – Are Gold Prices Climbing the Wall of Worries?

Gold prices, which had been relatively stable for many years, have taken a surprising turn since 2023. This sudden increase has caught many investors off guard, challenging their assumptions about the future of gold prices. It's as if Gold has defied expectations and started to climb the wall of worries. What's even more intriguing is that gold prices have not only increased but also remained resilient, maintaining their peak level for an extended period.

Gold is widely recognized as a commodity that can store wealth and be traded easily, which makes it a more reliable investment option than equities. It can also serve as a diversifying agent that helps minimize the risk associated with any investment portfolio. Additionally, during periods of market volatility, when other investments may be declining, Gold can help reduce losses. Finally, Gold maintains its purchasing power in the market even when the value of the US Dollar decreases.

Gold prices increase when there is a hope of interest rate cuts by the Federal Reserve. Purchases by Central Banks are spurring demand for Gold. Globally, Central Banks of major economies have increased gold buying for their respective country due to increased geopolitical instability and the ongoing Russia-Ukraine war. 

However, lately, traditional logics are not working. For example, gold prices increased even when the Fed announced it would keep interest rates ‘higher for longer’, and the US dollar is expected to remain strong. China has emerged as the most significant gold buyer, and Chinese are doing massive buying in Gold.

The second-largest economy, China, is seeing an unprecedented slowdown in real estate and equity markets. As a result, Chinese investors have turned to investing and speculating in Gold. In the latest trend, Chinese retail investors who have seen zero return in equities in the last 20 years or have lost considerable savings in real estate bankruptcies are turned to buying fingertip-sized gold beans, which cost as little as USD 80 and weigh about one-thirtieth of an ounce.

Moreover, the Chinese Central Bank is today the single biggest buyer of Gold. In 2023, The People’s Bank of China bought more Gold than it has done in the last 50 years. It is buying Gold to diversify its reserve funds and reduce dependence on the US Dollar. Simultaneously, China is reducing its investments in US Treasury bonds Due to these reasons, industry experts are bullish on gold prices and expect the gold prices to continue their upward trend, at least in the short and medium term.

Gold prices have risen 13.1% year-on-year from 2023 to 2024. Going forward, they are expected to increase at a CAGR of 7.0% during the 11 years from 2024 to 2035, starting from USD2,279.9 in April 2024 and reaching to USD5,801.0 in 2035.

At FA Fin Advisors, we take immense pride in analyzing trends in Investment Management & Research, and providing valuation services, financial modelling, business research, market sizing, and segmentation.

We believe that there is powerful, untapped knowledge out there that can transform the way institutional investors embrace a more conscious allocation to sustainable investments. There are a number of problems, though. It's often inaccessible, overlooked, or trapped in people's heads - creators, builders, innovators, the dreamers that do and the rebels of invention who rarely have time to share their views. 

FA Fin Advisors (www.fin-advisors.com) and its team aim to inspire thinking and just maybe, just maybe, play a role in mobilizing capital to create a reimagined, purposeful and more livable world. We can't wait to see what happens next.

Our portfolio of investment banking services include:

Quantitative Analytics | Investment Foresight | Business and Market Intelligence 

| Valuation and Due Diligence

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