LDN - Business

The price of gold keeps climbing to unprecedented heights. Here's why

[September 26, 2024] By WYATTE GRANTHAM-PHILIPS

NEW YORK (AP) — The rush for gold just keeps coming.

Gold hit another all time high this week. Recent gains for the precious metal are largely credited to ongoing economic uncertainty, geopolitical tensions and strong demand from central banks around the world.

If trends continue, analysts have bullish outlooks on the price of gold for the months ahead. But the future is never promised. Here's what you need to know.

Where does the price of gold stand today?
The New York spot price of gold closed Tuesday at just over $2,657 per Troy ounce — the standard for measuring precious metals, which is equivalent to 31 grams — the highest recorded to date, per FactSet. That would make a gold bar or brick weighing 400 Troy ounces worth more than $1.06 million today.

This week's record high means that the price of gold has climbed hundreds of dollars per Troy ounce over the last year. Tuesday's price is up nearly $145 from a month ago and more than $740 from this time in 2023.

The price of gold is up nearly 30% year to date, analysts note — outpacing the benchmark S&P 500's roughly 20% gain since the start of 2024.

Why is the price of gold going up?
There are a few factors behind the recent gains.

Interest in buying gold often comes at times of uncertainty — with potential concerns around inflation and the strength of the U.S. dollar, for example, causing some to look for alternative places to park their money. Gold also surged in the early days of the COVID-19 pandemic.

Among sources of uncertainty today are geopolitical tensions — which escalated over recent days with Israel's deadly strikes in Lebanon. And the ongoing wars in Gaza and Ukraine have continued to fuel fears about the future worldwide.

In markets like the U.S., there's also particular concern about the health of the job market. Last week’s larger-than-usual half-point cut by the Federal Reserve signals a new focus on slowing employment numbers, and more rate cuts are expected before the end of the year. And such action arrives in the midst of a tumultuous election year — which could prove crucial to economic policy in the road ahead, too.

In the near future, people are considering “any case of turbulence in the economy,” FxPro senior market analyst Michel Saliby explained. “This is why they're keeping a decent portion of gold in their portfolio as a ‘safe haven.’”

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Gold bars are shown stacked in a vault at the United States Mint, on July 22, 2014, in West Point, N.Y. (AP Photo/Mike Groll, File)

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 was well-above the five year average — reflecting "heightened concern with inflation and economic stability.”

Recent stimulus measures in China aimed at boosting consumer spending are also expected to up retail investments, Saliby added, further boosting gold's performance.

Is gold worth the investment?
Advocates of investing in gold call it a “safe haven,” arguing the commodity can serve to diversify and balance your investment portfolio, as well as mitigate possible risks down the road. Some also take comfort in buying something tangible that has the potential to increase in value over time.

Experts caution against putting all your eggs in one basket.

Both retail and institutional investors shouldn't be influenced by the “FOMO effect,” or fear of missing out, Saliby notes — explaining that people should not risk all their money just because they are seeing others rake in gains. He advises investors to watch the market and always have a clear risk management strategy for their position.

If geopolitical tensions cool, Saliby expects the price of gold to correct slightly, perhaps falling around $50 to $80. But he remains bullish overall for the near future — expecting gold's spot price to soon surpass the $2,700 mark previously predicted for 2025, and perhaps reach as high as $2,800 or $2,900 if trends continue.

Still, future gains are never promised and not everyone agrees gold is a good investment. Critics say gold isn’t always the inflation hedge many say it is — and that there are more efficient ways to protect against potential loss of capital, such as through derivative-based investments.

The Commodity Futures Trade Commission has also previously warned people to be wary of investing in gold. Precious metals can be highly volatile, the commission said, and prices rise as demand goes up — meaning “when economic anxiety or instability is high, the people who typically profit from precious metals are the sellers.”

If you do choose to invest in gold, the commission adds, it’s important to educate yourself on safe trading practices and be cautious of potential scams and counterfeits on the market.

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