In the last two months, gold prices have risen 20%, almost doubling their value since before the pandemic, when they hovered around $1,500. Yesterday, gold closed above $2,400. This rise has led gold to outperform the S&P 500 and the U.S. dollar, whose purchasing power has declined significantly since the pandemic.
Three main factors are driving this gold rally: inflation, central bank buying and geopolitical tension, including Russian sanctions. In addition, a large mystery buyer, possibly backed by the Chinese government, is rumored to be acquiring gold.
Inflation has been rising for six months, and central banks are accumulating gold to prepare for a possible financial crisis. Geopolitical tensions, especially between Russia and China, are also playing a role. U.S. sanctions have made many countries wary of holding dollars, opting for gold as a safe alternative.
The gold market is relatively small compared to global government debt, which means that any significant movement of money into gold can cause large swings in its price. Currently, Wall Street is predicting sky-high prices for gold, with Goldman Sachs projecting $2,700, Bank of America $3,000 and UBS $4,000 over the next few years.
In short, gold is seen as insurance in times of economic and geopolitical uncertainty, and its recent rally reflects this perception.
Peter St. Onge "Gold prices are on fire." Money Metals, April 2024.