Gold price hits new all-time high, what are the reasons?

The gold price has undergone a remarkable development and reached a new all-time high (ATH) of 2,376.20 USD or 2,214.86 EUR in April. Let's take a closer look at why the gold price has risen recently and what forecasts exist for the future.

1. Gold Price Development

Before delving into the reasons for the current rise in the gold price, let's look at the performance of gold in 2023 and 2024.

In 2023, the opening price of gold on January 1st was 1,823.86 USD, with the highest price reached in 2023 being 2,077.34 USD. However, by the end of the year, the gold price closed at 2,062.90 USD. The performance of the gold price was a 13.11% increase in 2023.

Gold started the year 2024 at 2,062.90 USD per ounce and has steadily increased since then. In April, gold surged to a new all-time high of 29.11 USD, surpassing the previous low of 2,376.20 USD in 2024 by 7 US dollars. The current gold price performance in the Eurozone is 16.4%. This means that gold has outperformed major stock indices, including the EURO STOXX 50 (11% increase), S&P 500 (8.8% increase), and the NASDAQ 100 (9% increase). This is a very strong performance for a more conservative and stable asset like gold. But what are the reasons for this strong increase, and can we expect further price hikes?

2. Industrial Demand and Applications

Gold is used in various industries including jewelry, as an investment asset, and in the electronics industry. In 2022, global gold demand was 4,741 tonnes, with 46% demanded by the jewelry industry, 23% used for investment purposes, and 7% utilized by the industrial sector.

One application of gold in the electronics industry is the production of ultra-thin wires for microchips and semiconductors. These so-called gold bond wires are only a few micrometers thick, thinner than a human hair. More than 3 kilometers of bond wire can be produced from approximately 1 gram of gold. These gold wires are used, for example, in the manufacturing of televisions, smartphones, computers, medical devices, and satellites.

3. Geopolitical Tensions and Economic Uncertainties

Currently, there are numerous regional conflicts that are already influencing the global economy and could escalate further on a global scale. The major conflicts include the war in Ukraine and the conflict in the Middle East, which is currently also causing issues in global supply chains. Additionally, conflicts in Europe or Taiwan could become a reality in the near future. In particular, the conflict between Israel and Iran could escalate further.

In times of geopolitical uncertainty and economic turbulence, investors seek safe havens. Gold has always been considered a safe haven, so further increases in the gold price are expected.

Moreover, central banks are expected to cut interest rates soon. This leads to increasing inflation on the one hand and a higher interest in precious metals on the other, as they do not pay interest but are considered good investments in times of low interest rates. Therefore, investors will increasingly turn to gold as a hedge against currency depreciation and inflation.

Furthermore, the United States is expected to print large sums of new US dollars, as they have to pay 1.6 trillion in interest on their national debt this year alone. This massive amount is roughly equivalent to half of Germany's total national debt. Therefore, further depreciation of the USD is expected, which should lead to higher precious metal prices.

Additionally, numerous central banks are buying gold on a large scale. Last year, over 1,000 tonnes of gold were purchased by central banks, with China, India, the Czech Republic, and Poland buying particularly large amounts.

4. Paper Gold Inflation

As early as 2016, experts estimated that the ratio of paper gold to physical gold is 233 to 1. Paper gold refers to certificates that confer the buyer a claim to a certain amount of gold. Whether the buyer could actually receive this gold is often highly questionable. Therefore, it is not surprising that the purchase of physical bars and coins is subject to a premium compared to paper gold.

An increase in demand for physical gold would lead to a sharp price increase, as most capital is currently invested in paper gold. There simply isn't enough gold to cover the capital amount that is currently in the market at the current gold price.

Commodity and futures exchanges play a crucial role in the discussion of gold price manipulation and the inflation of paper gold. A significant institution in this field is the New York Commodities Exchange (COMEX), where approximately 27 million ounces of gold are traded daily. This daily trading volume even exceeds the value of the largest physically backed gold ETF in the world by thirty times.

According to the World Gold Council (WGC), global mine production of the yellow metal amounted to around 111 million ounces in 2019. Thus, the daily trading volume alone on the COMEX represents about a quarter of the annual production. However, only one to two percent of the traded gold contracts are actually physically delivered, despite futures market products typically being designed to commit buyers and sellers to real transactions at a certain price and time in the future. The low actual delivery rate underscores the speculative nature of many commodity traders.

While the COMEX maintains gold reserves to deliver the traded gold, the exchange's inventory is likely only a fraction of the traded amount. Experts estimate that it corresponds to only one hundredth of the traded ounces. Some believe the reserves are even lower.

There is concern that in the event of a sudden rush for gold deliveries, the COMEX may not be able to fulfill all requirements. Data shows that gold deliveries surged in June, reaching a new record. To prevent a potential rush, the COMEX is significantly increasing its inventory. It hopes to strengthen the confidence of traders and investors through this measure. However, it remains questionable whether it can deposit enough physical gold given the high trading volumes.

5. Forecast for the Gold Price

Many experts anticipate that the gold price could range between 2500 and 3500 US dollars per ounce by the end of 2024 or mid-2025. Some experts even expect that the silver price will soon skyrocket. Robert Kiyosaki, better known to many as the author of "Rich Dad Poor Dad," predicts that the gold price will rise to 5000 USD within the next 2 years.

 

Giant crash coming. Depression possible. Fed forced to print billions in fake money. By 2025 gold at $5,000 silver at $500 and Bitcoin at $500,000. Why? Because faith in US dollar, fake money, will be destroyed. Gold & Silver Gods money. Bitcoin people’s $. Take care.

— Robert Kiyosaki (@theRealKiyosaki) February 13, 2023

 

But even if gold doesn't reach these heights, a steady and significant price increase is expected. Gold is becoming increasingly popular as an investment. Especially with new technologies such as gold tokenization or easy investment through gold-saving apps, gold is becoming more digital and thus more attractive to many private investors.

Due to global crises, the ongoing abandonment of the US dollar by many countries, also known as dedollarization, and partly high inflation, gold is becoming increasingly popular as a safe haven and demand is rising. Especially in countries with very high inflation rates such as Venezuela, Zimbabwe, Lebanon, Argentina, or Turkey, trust in fiat currencies is shaken, and people are looking for alternatives such as precious metals or cryptocurrencies. However, due to monetary policy and high inflation in recent years, many people in the United States and the Eurozone have also lost a significant amount of trust in the dollar and euro.

Overall, the outlook for the gold price is very good. We anticipate a significant increase in the price of gold. It could prove to be a very good decision to invest 5 to 10% of one's own portfolio in gold to protect against inflation and risks in financial markets. Investors who are willing to take on a bit more risk can choose a higher percentage. Overall, the risk of investing in precious metals is considered relatively low. The further development of the gold price remains exciting; we are very positive, and the gold rally should continue.

Disclaimer: The author of this article has invested money in gold himself.