Gold Price Rise: Geopolitical Uncertainty and Dollar Diversification
Gold prices have surged to new heights amid rising geopolitical uncertainties and a strategic shift away from the US dollar. The World Bank’s April 2024 edition of the Commodity Market Outlook provides a detailed analysis of these trends and their implications.
KEY FACTORS DRIVING THE GOLD PRICE INCREASE
1. Geopolitical Tensions:
• Gold reached an all-time nominal high of $2,331 per troy ounce in April 2024.
• Heightened geopolitical tensions have increased demand for gold as a safe-haven asset.
2. Central Bank Purchases:
• Record buying by central banks in emerging markets and developing economies (EMDEs) has significantly bolstered gold demand.
• Notably, China’s central bank extended its gold purchases for the 17th consecutive month in March 2024.
3. Diversification from the Dollar:
• Countries like China, India, and Türkiye are diversifying their reserves away from the US dollar, increasing their gold holdings.
• This strategic move is driven by a desire to reduce dependency on the dollar amid global economic uncertainties.
4. Strong Retail Investment:
• In several countries, gold jewelry serves as a quasi-investment, further supporting demand.
• Retail investment in gold has remained robust, driven by economic instability and currency fluctuations.
5. Exchange-Traded Funds (ETFs) Activity:
• Increased activity in gold ETFs, particularly in China, has contributed to the price surge.
• ETFs offer a convenient way for investors to gain exposure to gold without owning the physical metal.
OTHER PRECIOUS METALS TRENDS
Silver:
• Prices surged by 12% in April 2024, driven by recovering industrial activity and factors similar to those affecting gold.
• Anticipated growth in industrial demand and mine production is expected to support silver prices, with a 7% increase projected for 2024.
Platinum:
• Platinum prices rebounded by 3.5% in April 2024 after a slight dip in the first quarter.
• Despite a moderation in demand growth, reduced production from major producers like Russia and South Africa supports prices, with a 4% increase expected in 2024.
FUTURE OUTLOOK
• Gold: Expected to be 8% higher in 2024 compared to 2023, supported by continued demand from EMDE central banks and retail investors.
• Silver and Platinum: Both metals are forecasted to see price increases in 2024 and 2025, driven by industrial demand and supply constraints.
CONCLUSION
The surge in gold prices is a result of multiple factors, including geopolitical uncertainties and a strategic diversification from the US dollar. These trends underscore the ongoing importance of gold as a stable and valuable asset in times of global instability.
SRIRAM’S
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