• Gold prices reached an all-time high this week.
• Falling interest rates and rising geopolitical tensions increase the appeal of gold as a safe haven asset.
• Wall Street expects the rise to continue as gold has outperformed stock prices since October 2022.

Price gold has been on the rise this year.

The precious metal reached a record high of $2,772 per ounce this week and has risen in six of the last seven weeks.

With a year-to-date gain of nearly 33%, gold returns have outpaced the broader stock market, including tech-heavy stocks. Nasdaq 100by a margin of about 10 percentage points.

Since October 2022, when the bull market in stocks began, gold has outperformed stock gains, posting a 67% return over the previous year. S&P 500s According to YCharts data, approximately 63% return was achieved.

These superior returns make the metal one of the hottest investments in the world.

SPDR Gold Shares, the largest gold ETF, has $78 billion in assets under management and has seen inflows of about $5 billion in the past six months, according to data from ETF.com.

Physical gold is also having a moment. Costco has consistently sold out of gold bars when they become available on its website, and Wells Fargo is predicting Costco sold gold bullion worth up to $200 million Silver coins are distributed to its members every month.

It’s been a perfect storm for the yellow metal, and the outlook suggests more gains ahead.

Here’s what’s happening.

Demand from central banks

Global central banks have been on a gold buying spree for the last few years.

According to the World Gold Council, central banks purchased a record 483 tonnes of gold in the first half of the year. Central banks of Türkiye, India and China were at the top of the list of biggest buyers.

Some of the increase in demand is coming from countries looking to move their assets away from the US dollar.

“We believe the threefold increase in central bank purchases since mid-2022 due to fears about US financial sanctions and US government debt is structural and will continue.” What Goldman Sachs said in a note last month.

This dynamic has been on display since Russia invaded Ukraine in 2022; America is trying to inflict maximum economic damage on Russia through sanctions. But it is harder to impose sanctions on a country that is less dependent on the dollar, and one way to be less dependent on the dollar is to buy gold.

This is a dynamic the United States should watch closely, according to economist Mohamed El-Erian.

El-Erian wrote In a column for the FT It was stated that gold’s persistent rise this week “captures a trend of increasingly persistent behavior between China and ‘middle power’ countries.”

“There is also interest in exploring possible alternatives to the dollar-based payments system that has been at the center of international architecture for nearly 80 years.”

Russia has had some success in this regard, managing to steer its economy away from a full-fledged downturn after the US imposed sweeping sanctions in 2022.

Russia’s ability to steer its dollar-free economy out of crisis could give other countries the confidence to reduce their dependence on the dollar, which could ultimately benefit gold.

“What is at stake here is not only the erosion of the dominant role of the dollar, but also the gradual change in the functioning of the global system,” El-Erian said. “As deeper roots develop, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.

Geopolitical tensions

Gold Considered a safe harbor asset due to its long history as a stable store of value.

So when geopolitical tensions rise, investors tend to flock to the shiny metal, and there’s plenty of cause for concern right now.

From Russia’s war against Ukraine to escalating conflicts in the Middle East to China’s long-standing threat to Taiwan’s independence, geopolitical tensions are rising rather than falling.

Moreover, rising US debt means Treasuries, another historic safe-haven asset, may no longer be so risk-free.

“Gold appears to be the last ‘safe haven’ asset standing, encouraging traders, including central banks, to increase their exposure.” Bank of America said in a note this month.

Trump trade

Trump trade has gained momentum recently Gold made a big profit as the former president’s chances of winning the election increased.

This is because Trump’s potential presidency is expected to be accompanied by a rising government deficit and a rapidly growing debt pile; This will further raise concerns about the recovery in inflation and the sustainability of the US dollar.

“If you’re worried about fiscal profligacy, financial pressure and attacks on the Fed’s independence, gold could be an attractive asset,” Davix Oxley, an economist at Capital Economics, said Friday.

Even if Trump doesn’t win the election, the deficit is likely to widen, leading gold to make further gains, according to Steve Sosnick, chief strategist at Interactive Brokers.

“Neither candidate is preaching fiscal discipline, and the Fed appears willing to continue cutting even if inflation remains slightly above target. So the idea is that gold could be a viable alternative if interest rates rise and the economy remains solid,” Sosnick told Business Insider. “Even if the economy isn’t solid, it can still be a good store of value.”

interest rates

According to data from the World Gold Council, falling interest rates have historically benefited gold prices; The commodity rose as much as 10% in the six months after the Federal Reserve’s first interest rate cut.

With the Fed expected to cut interest rates multiple times next year, lower rates should be a headwind for gold prices.

Interest rates are In fact, it has jumped since the Fed’s first rate cut Gold prices continued their rise last month, with the 10-year Treasury bond yield reaching its highest level since July this week.

This is a sign that gold investors are becoming more focused on the global interest rate path, which points lower as global central banks appear ready to ease monetary policy.

The Bank of China cut interest rates by 25 basis points this week, while the Bank of Canada cut interest rates by 50 basis points. The European Central Bank cut interest rates by 25 basis points last week and economists say the Bank of England Preparing to provide bigger interest rate cuts more than markets had previously expected.