On July 17, world gold prices surged by almost 1%, surpassing $2,488 per troy ounce for the first time ever, according to data from the New York Mercantile Exchange COMEX. This marked the second consecutive day of gold reaching new historical highs due to increased geopolitical uncertainty.
The assassination attempt on US presidential candidate Donald Trump on July 13 during a campaign rally in Pennsylvania has significantly heightened political risks, prompting investors to shift their money into gold, traditionally seen as a protective asset. The attack, which resulted in Trump being wounded in the ear, was the first of such magnitude in the US in the past 43 years.
Additionally, gold prices have been bolstered by a record weakening of the dollar in the international market over the past four months. The dollar index has fallen by almost 2.5% since the end of June, while gold prices have gained more than 8% during the same period. This depreciation makes gold more accessible for purchase in other currencies.
Analysts attribute the dollar's decline to investor expectations of changes in US monetary policy. The US Federal Reserve is anticipated to reduce the interest rate this year, especially amid falling inflation and a weakening labor market. Jerome Powell, the head of the Federal Reserve, has indicated that a stable downward trend in inflation would suffice for a rate cut, without waiting for inflation to hit the target level of 2%.
Since March 2022, the Fed has increased interest rates 11 times, from near zero to 5.25-5.5% per annum, to combat a 40-year record inflation. High interest rates have slowed business operations, and a return to a looser monetary policy is expected to support business and consumer activity, albeit at the cost of a weakening dollar. These conditions make gold an attractive investment.
Geopolitical tensions in the Middle East and actions by global central banks have further supported gold prices. Central banks worldwide have been moving away from fiat money and increasing their gold reserves, driven by distrust in fiat currencies. In 2022, central banks purchased a record 1082 tons of gold, more than doubling the 2021 figure. Although the volume slightly decreased to 1037 tons in 2023, it remains significantly higher than the average for the previous decade.
Major buyers of gold include Turkey, China, India, Poland, Kazakhstan, Singapore, the Czech Republic, Oman, Kyrgyzstan, and Russia. The share of gold in global reserves has increased from 15% in September 2022 to 16% in October 2023, while the share of the dollar has fallen from 51% to 49%. This trend is expected to continue, with central banks predicting the dollar's share in global reserves to drop to 40-48% within the next five years.
The future of the international monetary system remains unstable, with central banks expressing less confidence in the US dollar's dominance. The US sanctions policy has also raised concerns, particularly after the financial restrictions imposed on Russia. Many central banks fear that sanctions could limit access to their dollar reserves, prompting them to diversify their investments into gold.
