During 2024, gold experienced an impressive, and continuing, rebound. At the end of September, the price of this precious metal reached a record USD $2,687.30 per ounce, a significant increase of further 27% from the beginning of the year.
The question is: Why does the price of gold continue to rise and what does this mean for the global economy? Next, we share 3 factors that explain why the price of gold continues to rise in 2024.
1. Cuts in Interest Rates
One of the main drivers of the increase in the price of gold is the monetary policy of the United States Federal Reserve (Fed). In mid-September 2024, the Fed cut interest rates by half a percentage point, reducing the attractiveness of the fixed income assets, such as Treasury Bonds, compared to gold. This policy of monetary flexibility leads investors to seek alternatives of more stable value such as gold, which has historically served as a safe haven in times of uncertainty.
2. Increase in Demand from Central Banks
Another key factor is the increase in gold purchases by Central Banks, especially in countries like China, Türkiye and India. These nations have diversified their reserves, reducing their holdings of US dollars, which has generated a sharp increase in the global demand for gold.
The behavior of the Central Banks reflects a growing distrust in the long-term stability of the dollar and an effort to protect themselves from possible global economic fluctuations.
3. Economic Uncertainty in the United States
Although the stock market, represented by the S&P 500 index, has had a positive performance this year (20% increase), many investors remain concerned about the underlying health of the US economy.
The recent rise in unemployment, which reached 4.2% in August, along with concerns about a future economic slowdown, has led investors to turn to gold as a defensive asset. In times of uncertainty, investors prefer assets that maintain their value over time, in that sense, Gold has historically been one of the most reliable assets.
Gold Trend
As uncertainty persists over the global economy, gold’s trend will continue to be solid. JPMorgan Chase analysts project that gold could reach USD $2,850 per ounce by 2025. This forecast is based on the expectation that the Federal Reserve will continue its policy of cutting interest rates, which will further increase the attractiveness of gold compared to other low-risk investments, like Treasury bonds.
Investors seeking a safe haven from economic fluctuations or from the weakening of other currencies, such as the US dollar, will continue to see gold as a firm option.
In the long term, the combination of a looser monetary policy, growing demand from the Central Banks, and lingering doubts about the U.S. economy will keep gold in an upward trend.
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