What rising gold prices can tell us about the economy in 2024
Market hits all-time high, boosted by a weakening US dollar and rising global tensions
The price of gold hit an all-time high this month as the precious metal reflected signs of growing instability across the world.
The "haven asset" rallied as much as 3% to trade at a record $2,135 per ounce on 4 December, said the Financial Times, before falling by 2% the next day. The gains, driven by a fall in the US dollar against other currencies since the start of November, are "the latest leg in a powerful rally" that began last year, said commodities correspondent Harry Dempsey, driven by investor concerns over conflicts in Ukraine and Gaza. Overall, the price is 40% higher than it was in 2019.
But that pattern has accelerated in the past two months, with the Israel-Hamas conflict "boosting demand" for the asset, said CNBC. Analysts believe the value could remain above $2,000 next year thanks to global tensions, a likely weaker dollar and expected further cuts to interest rates.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
"Gold tends to perform well during periods of economic and geopolitical uncertainty," said the news site, "due to its status as a reliable store of value."
Why is the price of gold rising?
November was a great month for Wall Street, said finance and business writer Kevin T. Dugan on Intelligencer. The Dow Jones Industrial Average went on a "furious rally", climbing more than 11%, while the bond markets "gave up much of their pessimism about inflation and went on a frolic".
The expectation was that the Federal Reserve would start cutting interest rates again, and that it was better to "buy, buy, buy just about everything that could be gotten before it was too late". But at the start of December, the rally "didn't so much as fizzle out as move elsewhere", said Dugan: "to bitcoin and gold".
On 4 December, the yield on a 10-year US treasury bond fell from its 16-year high of over 5% to 4.3%. Stocks also faltered, and the market turned its attention to gold.
"Gold pays no income," said The Wall Street Journal. Unlike bond yields, the price of gold is determined by supply and demand. Speculative demand for the metal "tends to wane when bond yields, after adjusting for inflation, go up". Conversely, it "waxes when these so-called real yields go down".
The price of gold also tends to increase as interest rates decrease. Gold is priced in US dollars, and lower interest rates weaken the dollar. The "softer greenback" makes gold cheaper for international buyers, said CNBC. The dollar fell by 3% in November, its biggest monthly slump in a year.
But the price of gold didn't fall below expectations this year despite a strong US dollar buoyed by rising interest rates, noted Naimul Karim in the Financial Post. The average price of gold this year is "at least $150 higher than in 2022". So there are other factors at play: namely geopolitical uncertainty.
Wars in Ukraine and the Middle East and tensions between the US and China make for a "fractured, febrile world", said global markets writer Anna Cooban on CNN. In times of stress, gold glitters. It's "tangible", finite and tends to hold its value.
What does this mean?
Analysts expect the US dollar to decrease next year, as the Federal Reserve starts cutting interest rates. But as Mark McCormick, global head of foreign exchange and emerging markets strategy at TD Securities, told Cooban: "A weaker dollar is a rising tide that lifts all boats."
A weaker dollar tends to mean more money in the economy, which means the gold boat could rise higher than ever before. In fact, "$2,200 per ounce [is] in view," Nicky Shiels, head of metals strategy at MKS PAMP, told CNBC.
Nearly a quarter of central banks intend to increase their gold reserves next year, according to a World Gold Council survey in May, with China, Turkey and Russia adding to their stock. Central banks already own about a fifth of all the gold mined in human history.
Good news for Canada, perhaps, which is home to half the world's gold mining companies. But a higher price for gold doesn't necessarily mean more profit. There is a "massive disconnect" between gold price and the mining company's equity valuation, a mining company executive told the Financial Post.
We may be "flirting" with an all-time price high next year, economist David Rosenberg told the news site. But there is something that matters much more than demand. Ultimately, he said: "Gold is all about fear, not about greed."
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
Today's political cartoons - April 27, 2024
Cartoons Saturday's cartoons - natural gas, fundraising with Ted Cruz, and more
By The Week US Published
-
Aid to Ukraine: too little, too late?
Talking Point House of Representatives finally 'met the moment' but some say it came too late
By The Week UK Published
-
5 generously funny cartoons on the $60 billion foreign aid package
Cartoons Artists take on Republican opposition, aid to Ukraine, and more
By The Week US Published
-
Reading glasses could be an economic boost to people in low-income countries
Under the Radar A recent study found that providing glasses can significantly raise a person's earning power
By Justin Klawans, The Week US Published
-
The largest insurance company payouts
In The Spotlight Fights over insurance have been in the spotlight following the collapse of the Francis Scott Key Bridge in Baltimore
By Justin Klawans, The Week US Published
-
Why are dollar stores a microcosm for America's shrinkflation problem?
Today's Big Question Recent reports have tapped dollar stores as the top offenders of shrinkflation — even beyond grocery stores
By Justin Klawans, The Week US Published
-
How the Realtors' commission settlement could upend the housing industry
The Explainer Home sellers and buyers stand to benefit from the end of the 6% commission
By Harold Maass, The Week US Published
-
Why Reddit is going public
The Explainer The 'front page of the internet' is facing criticism for the decision as well as its valuation
By Chas Newkey-Burden, The Week UK Published
-
Germany's transportation industry grinds to a halt as workers strike
The Explainer The country's railways and airports are both at a standstill as union members walk off the job
By Justin Klawans, The Week US Published
-
Feds cap credit card late fees at $8
speed read The Consumer Financial Protection Bureau finalized a rule to save households an estimated $10 billion a year
By Peter Weber, The Week US Published
-
Chinese electric cars may be coming to spy on you
Talking Points The Biden administration investigates Chinese electric cars as a potential economic and national security threat
By Harold Maass, The Week US Published