Business a.m.
Two key but often overlooked factors are driving the gold price higher: China’s consistent accumulation of the precious metal and the expectation of a reacceleration of inflation in the United States. While these factors may have gone under the radar, they are having a significant impact on the gold market, observed Nigel Green, CEO/founder deVere Group.
The chief executive of one of the world’s largest independent financial advisory and asset management organisations, made the observation as gold neared $2,300 an ounce in Thursday trading.
Green noted that the surge in gold prices to unprecedented levels has captured the attention of investors worldwide, pointing out that the common narrative attributes this surge to geopolitical tensions and expectations of interest rate cuts by the US Federal Reserve.
He stated further: “It’s certainly true that the Russia-Ukraine war and conflicts in the Middle East have contributed to the uncertainty plaguing global markets.
“Investors traditionally flock to gold during times of geopolitical turmoil, perceiving it as a safe-haven asset that retains value even in turbulent times.
“Similarly, expectations of interest rate cuts by the US Federal Reserve diminishes the opportunity cost of holding gold, further enticing investors to enter the market.”
Beyond the widely discussed factors of geopolitical tensions and expectations of lower interest rates, two other key factors are often overlooked in discussions about the surge in gold prices, said the CEO of deVere Group. He explained that the first of these is the expectation among influential traders and analysts of a reacceleration of US inflation. This expectation, he noted, is prompting some investors to increase their gold holdings as a hedge against inflation.”
The second, he continued, is China’s consistent accumulation of gold reserves over the past 16 months. This has helped to boost the price of gold, as evidenced by data from Bloomberg.
According to recent data, the core personal consumption expenditures price index, a key measure of inflation, rose by 2.8 per cent in February, aligning with market expectations.
Inflation erodes the purchasing power of fiat currencies, making gold an attractive hedge against currency devaluation. Traders who anticipate inflationary pressures to intensify, can be expected to turn to gold as a reliable store of value, driving up demand and consequently prices.
Furthermore, China’s strategy of diversifying its central bank holdings to reduce reliance on the US dollar has led to substantial gold acquisitions.
“This diversification not only safeguards against currency volatility but also reflects China’s broader ambition to assert economic independence and influence in the global financial landscape. As China continues to bolster its gold reserves, it exerts upward pressure on gold prices, further fuelling the rally,” Green stated. He added that the confluence of these factors has propelled gold prices to historic highs, nearing the $2,300 threshold.
The direction of gold prices in the future will continue to be shaped by the changing macroeconomic landscape and geopolitical developments, noted Green. While these factors will remain important, he said, other aspects such as predictions of rising inflation and China’s ongoing accumulation of gold,cannot be ignored.
‘We see the momentum for gold to continue for the foreseeable future, as investors are reminded of its enduring appeal as a safe haven asset and as US economic rivals continue to move away from the dollar,” Green concluded.
