The price of gold which is at the time of writing above $2,000 dollars per ounce has increased extensively this past year, driving many economists, central bankers and finance professionals to analyze the reasons behind this surge.
Why has gold’s price been particularly on the rise in recent years? "A decade of free money” is a key reason why the price of gold has continued increasing over the past five years, says Mark Bristow, CEO of Barrick Gold Corp., the second largest gold producer in the world.
Irresponsible Economic Policies
In an interview with the Financial Post, Mark Bristow talks about the future of gold, and shares his views on a possible “soft landing" in the economy and the impact it will have on the price of the precious metal:
“We saw a poor mandatory policy way back when inflation first reared its head, but soon after that, the feds sort of got a grip on things. But they chased the interest rate really high quickly, and that was on the back of more than a decade of quantitative easing and fiscally liberal policies (to be polite), fiscally reckless policy (in my mind). What we are measuring now is the impact of that devaluation”.
A Time of Free Money
The millions of dollars that the United States government printed during the pandemic are part of this phenomenon of financial depreciation. Although, Mark Bristow does points out, that the problem began before the global health crisis:
“I would say it was post-2008. And then we got into COVID-19 and that was even freer (money). Very low or zero interest rates. When you have free money, you fuel inflation because people live above their means. And then, of course, people were sent home during COVID and sent a cheque. Really, the world became used to this”.
“When you print money, it’s like printing shares in a company. If you print shares in a company and you don’t add more value, then the value of the shares goes down. And so when you print piles of fresh money and your economy doesn’t grow, the value of that money becomes risky.”
Soft Landing?
The price of gold also reflects the perceived risk of the global economy. Mark Bristow reflects in his article that "we have more conflicts across the globe than we have seen since maybe in the late ’80s and towards the end of the Cold War and so that’s another driver for the increase in the price of gold.”
Another important factor for the increase in the price of gold is the de-dollarization of central bank balance sheets: “You have the de-dollarization of central-bank balance sheets and that is quite an important driver, because we have seen the purchase of gold by central banks. We have about 40 countries going into elections in 2024, and some of the early signs suggest it’s not what people were expecting. And then, of course, the gazillion-dollar question: everyone’s talking about a soft landing."
Bristow continues forcefully, "although people want to wish there’s a soft landing, we underestimate the damage that’s been done to western economies. If I look back to when I started out in my career, we didn’t have any of the big western economies with a debt of more than one time the GDP (gross domestic product). And now it’s common”.
About gold and the rise in its value in 2024 as a result of all the above, the expert wonders: "Why do you buy gold? You buy it to preserve your wealth, because you don’t trust the economy, and that’s also why there’s signs of crypto getting some revival, although I don’t believe in that. But if you look at 2023, gold has outperformed all the other asset classes.
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