The World Gold Council’s market strategist and head of Americas Joe Cavatoni recently discussed the primary drivers of gold prices in the podcast “What Goes Up.” Gold typically sees increased demand during times of political and economic upheaval as investors try to preserve the value of their assets while fiat currencies such as the dollar depreciate.
However, gold prices have trended lower than usual in recent years despite the occurrence of significant economic and political upheavals that would have traditionally pushed gold prices up. Prices spiked toward the end of 2022 and early 2023 as central banks around the world, with China in the lead, bought up thousands of tons of gold in what was one of the largest gold-buying sprees by central banks in history.
Cavatoni noted that aside from political and economic upheaval, general public demand is another factor driving gold prices.
The precious metal has applications in modern technologies and jewelry, as well as being an investment option for investors looking to diversify their portfolios and invest in something relatively safe. If the demand for electronics, gold jewelry, and gold stocks increases, gold prices will likely increase in tandem.
The WGC official explained that the global market for gold can also affect prices. Outside of the Unites States, China and India are among the top gold buyers on the globe. Their central banks were majorly responsible for the surge in gold purchases in late 2022 and without a doubt contributed to the corresponding spike in gold prices.
Monetary policy is another key driver of gold prices. In fact, federal monetary policy is one of the reasons why gold prices did not increase as much as they could have in recent years despite conditions that would have increased its appeal as a safe haven asset. Safe haven assets such as gold ideally should have seen higher prices as crisis after crisis battered the U.S. and global economy. However, action by the U.S. Federal Reserve hampered investor interest in gold.
The fed has consistently raised benchmark interest rates for several months to combat inflation, but this drew investors away from gold, which doesn’t pay interest to assets that could allow them to take advantage of the increasing interest rates. According to Cavatoni, gold may perform better when the fed finally loosens its monetary policy and gives investors more incentive to buy gold.
Cavatoni also notes that the majority of the institutional investors who left the gold market still haven’t returned and that most of the recent upward price action has been due to increased central bank purchases.
Precious metals companies such as Eloro Resources Ltd. (TSX: ELO) (OTCQX: ELRRF) know the interplay of these market dynamics and tweak their operations in tandem with the specific point of the market cycle prevailing at a particular time so they can remain afloat and profitable despite the evolving market conditions.
NOTE TO INVESTORS: The latest news and updates relating to Eloro Resources Ltd. (TSX: ELO) (OTCQX: ELRRF) are available in the company’s newsroom at http://ibn.fm/ELRRF
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