Gold prices have been surging lately, reaching their highest levels in eight years. This surge is due to a number of factors, including investor confidence, economic uncertainty, and geopolitical tensions. How is each of these factors being impacted right now, and in what ways?
Investor confidence is a major influence on gold prices. When investor confidence is high, gold prices tend to rise as investors seek the safety of precious metals in times of market volatility and uncertainty. Conversely, when investor confidence drops – either due to economic downturns or political instability – gold prices may decline as investors look for alternative investments. The recent coronavirus pandemic has caused significant changes in investor confidence that have had an impact on gold prices worldwide. Investor fears about the potential economic fallout from the virus have led many people to sell their stocks and invest in gold instead. This increased demand for physical bullion has pushed up the price of gold significantly since mid-March 2020. As more information emerges about how governments around the world are responding to COVID-19, and what steps they’re taking toward recovery plans, investor sentiment can be expected to shift accordingly. Positive developments might potentially lead to further increases in gold prices, while negative news could cause them to dip once again. In addition, central banks around the world continue buying large amounts of gold reserves which also affects its price by driving it higher due to increasing demand but limited supply available on global markets. This type of activity generally boosts overall market sentiment too, creating a sort of a ‘virtuous circle’ effect where buyers feel more comfortable investing because other buyers are doing so as well (and vice versa).
Changes in economic uncertainty have a huge impact on the price of gold. When there is more risk or fear in the markets, investors tend to flock to gold as an investment option due to its perceived safety and relative stability. This safe-haven demand drives prices higher, because when investors buy up large amounts of gold, it drives up the price. On the other hand, when economic conditions are stable and less uncertain (such as during periods of low inflation), investors may be more likely to move money out of gold into alternative investments such as stocks or bonds, which can sometimes drive down its price. With the recent increases in inflation, the price of gold and its value has only increased. Gold also often reacts positively to increasing political tensions around the world. Russia’s attacks on Ukraine have interestingly increased demand for gold as people look for a safer place for their money than would otherwise be available in local currency markets. Overall, changes in economic uncertainty will always greatly influence how much people choose to invest in gold and therefore, directly affect its market value.
We touched on this a bit in both of the previous paragraphs, but one of the main indicators of gold’s value is where global politics and relations stand. The high tensions between Russia and Ukraine have caused many in America and Europe to place a higher value on gold. Geopolitical risks such as trade wars, sanctions against countries, and increased protectionism have also caused investors to flock to safe-haven assets like gold in order to protect their wealth from market volatility. The ongoing US-China trade war has led many investors to move away from stocks and bonds into commodities like gold and silver, causing prices for both metals to rise sharply over the past year. On top of this, Brexit negotiations between the UK and EU have also been noted by analysts as having pushed up demand for precious metals due largely to investor concerns about potential economic fallout should Britain leave without a deal in place with Europe. These factors have all impacted recent increases in Gold’s value.
There are many other factors influencing gold’s price that we haven’t elaborated upon too. Climate change might be a large factor in years to come, along with the potential for war and globalization. For those considering an investment in gold, it is always helpful to keep track of the state of the world and how it is fluctuating.