The gold market has recently experienced a notable surge, with a remarkable 21% increase in value in 2024 and a significant 32% rise over the past year. This surge has firmly established gold as one of the standout performers among major asset classes, hitting new all-time highs.
While the price of gold has been on the rise, other commodities like silver and platinum have faced challenges. Notably, palladium has witnessed marked declines in contrast to gold’s upward trajectory.
Analysts are observing this gold rally under unique circumstances, prompting discussions on potential factors that could potentially interrupt or reverse this bullish trend.
Geopolitical tensions have played a pivotal role in driving the demand for gold. The decision to freeze Russia’s foreign currency reserves in 2022 has rendered Western bonds less attractive to non-democratic nations, subsequently boosting the appeal of gold as an alternative asset for central banks.
Moreover, the persistently high budget deficits in major economies such as the US, UK, and France, exacerbated by the pandemic, have further fueled interest in gold as a hedge against economic uncertainties.
The ongoing political climate in the US has also contributed to the surge in gold prices. With the current election cycle inducing anxiety among investors, proposed policies by both major political parties that could potentially destabilize the economy have led investors to turn to gold as a safeguard.
Emerging market demand remains a crucial factor in supporting gold prices, with countries like China, India, Saudi Arabia, and Russia driving physical gold demand despite global market volatility.
While the foundation supporting the gold rally remains robust, several potential risks could impede or reverse this upward trend. These risks include a decline in economic dynamics in emerging markets, the discovery of large-scale gold deposits leading to increased supply, a collapse in energy prices impacting gold production costs, and the influence of the Federal Reserve’s monetary policy on gold prices.
Additionally, fluctuations in the Japanese yen against the US dollar, a shift in demand towards other precious metals, a rally in the US dollar due to unexpected fiscal improvements, and potential liquidation of gold holdings by retail investors could all pose challenges to the continued upward trajectory of the gold market.
