The sharp rise in the price of gold – which global markets are witnessing – reflects a major shift in investment paths in safe assets, as a result of growing financial concerns and escalating geopolitical tensions globally.
The British Economist magazine said that the price of gold recorded an increase of 38% during the current year, exceeding $2,700 per ounce, which led to a noticeable increase in the interest of consumers and investors in the yellow metal as a safe haven, while many central banks are seeking to enhance their reserves of it in light of the instability of the system. Global financial.
Many believe that gold provides effective protection against inflation and is considered a strategic means of diversification within investment portfolios, and plays a pivotal role in reducing financial risks, especially in light of the pessimistic scenarios raised by some, such as the United States defaulting on its debts.
On the other hand, some major investors look at gold with apprehension, as they consider it an instrument incapable of generating stable income. A study showed that only a quarter of American institutional investors own shares in gold traded funds, which explains why gold fund holdings have not increased despite the rise in prices.
Demand for gold
Data from the specialized investment company Campden Wealth indicate that two-thirds of family investment offices – which manage the wealth of the world’s largest families – invest in gold, which enhances demand for the yellow metal, as the wealthy seek to protect their wealth in light of the worsening financial crises.
The Economist noted that the demand for gold is increasing significantly in China and India, where purchases of gold bullion have witnessed a significant increase. India is considered one of the largest consumers of gold in the world, and demand increases during the holiday seasons and traditional occasions.
According to the newspaper, heads of central banks in the world play a pivotal role in the rise of the yellow metal market, as its share of their reserves increased to 11% over the past year, and this trend shows an increasing willingness to confront unstable economic conditions and adopt gold as a safe haven.
The Economist reported that the Russian-Ukrainian war prompted central banks to reevaluate their reserve strategies and increase gold reserves, which is what happened in countries such as Singapore and Poland. Developing countries are also focusing on improving their reserve strategies by turning to gold as a safe and reliable investment option.
The Economist concluded that it is expected that central banks and investors will continue to rely on gold, and that its prices will continue to rise, which will strengthen its position as a safe haven and one of the most reliable assets in light of escalating concerns about inflation and geopolitical tensions.
Factors that enhance gold
Several factors contribute to the rise in gold, including:
- Some investors seek protection from the risks of higher-than-expected inflation.
- Other investors adjust their portfolios in the wake of a stock market rise.
- Geopolitical concerns, including Israel’s war on the Gaza Strip, as well as Russia and Ukraine, along with the impending presidential elections last November, add to the list of uncertainties pushing investors to turn to gold.
- Analysts are closely monitoring interest rate cuts, which could impact US government bond yields, making other safe-haven assets such as gold more attractive.
- Increased record gold purchases by central banks globally.
- The possibility of escalating tensions between the United States and China if Republican presidential candidate Donald Trump wins is being cited as reasons for the curve to remain bullish on gold.
