Gold prices rose 1.8% between 29th July and 2nd August 2024. Both the spot and futures markets for gold enjoyed price jumps.
Geopolitical tensions and economic conditions such as expected declines in interest rates are major drivers behind this price performance. It's a continuation of trends observed throughout 2024, with gold prices rising by around 18% this year.
Other precious metals such as silver and platinum have also experienced price increases over the same timeframe due to this effect.
Geopolitical Tensions
Geopolitics are one of the main factors behind the demand for gold. The war between Russia and Ukraine reached further levels following the February 2022 invasion, marking the biggest European conflict since World War II and gold prices have risen upwards ever since.
The conflict between Israel and Palestine is also contributing, with a major outbreak of violence taking place in 2021. Tensions throughout the Middle East have been brewing ever since.
Historically, demand for gold rises during times of greater uncertainty. Many people are less willing to invest in equities and instead turn to gold for its reputation as a "safe haven" asset. For instance, when the global pandemic broke out in 2020, the stock market crashed and gold prices rose by 24.43% (according to Macrotrends.net data). In contrast, in 2021, the stock market enjoyed strong performance and gold prices fell by 3.51%.
Economic Factors
Decreases in interest rates are also contributing to rising gold prices. As major economies across the world seemingly head toward recessions, many governments are reducing interest rates.
While the US federal funds rate has been hovering around the 5% mark in 2024, many economists are predicting that the Fed will cut rates in September due to rising unemployment and falling inflation. Doing so stimulates the economy by encouraging spending and borrowing.
Over the previous years, low unemployment and reasonable inflation in the US had resulted in higher rates.
When interest rates are higher, there's more incentive for investors to put their money into assets like savings accounts or bonds. As a result, there's a greater opportunity cost for investing in gold. But when it's less profitable to invest money elsewhere, gold becomes a more attractive investment prospect and its price rises.
Other economic factors, such as high inflation over the past few years, have also encouraged gold purchases. Gold is widely viewed as a way to hedge against inflation.
As well as individual and institutional investors, many central banks across the globe have purchased gold. In addition to the economic conditions outlined above, this has been partly driven by lower reliance on the US dollar.
What it Means for Investors
With economic and geopolitical tensions unlikely to stop any time soon, some investors may be considering becoming gold buyers for investments into their retirement funds. Purchasing physical gold blocks is one option, but investors can also opt for gold funds.
Gold can help to diversify a portfolio, especially since its price often moves in the opposite direction to the stock market.
