Gold chalked up a new all-time high of $2,195 per ounce on Friday, clocking year-to-date gains at 5% and 12-month gains at a whopping 19%. But with the market lacking the kind of obvious, cataclysmic driver that pushed gold to its previous all-time records—like the COVID-19 pandemic or the Great Recession—investors that don't normally track day-to-day shifts in the gold price would be excused for asking: why the surge?
The answer, of course, is multifaceted. One prime mover for the latest bull run is anticipation for rate cuts from the U.S. Federal Reserve. Most economists expect the Fed to start cutting rates in June. When interest rates drop, the opportunity cost of holding gold, which of course earns no interest, drops in turn, driving demand for investment in the yellow metal.
Another factor is that while U.S. and Canadian markets are going fairly strong, with inflation at least partly in hand and the U.S. projected to grow 2.1% this year, other economies like Japan, China, Germany, and the United Kingdom are facing slower growth and, in China's case, serious fears of economic instability. We've seen massive demand for gold from China in particular, amid the ongoing real estate debt crisis that took down the $300 billion Evergrande.
Then there's the atmosphere of general geopolitical instability, as Russia pushes further into Ukraine, Israel continues bombing Palestine, and a November U.S. election that pits two of the least liked men in the world against one another, again, in a contest nobody seems to actually want, and which will certainly cause turbulence in the markets.
It's worth noting that gold, the prototypical so-called "safe haven" asset, has already been sitting mere percentage points from its previous all-time high for weeks, even despite high interest rates and a strong U.S. dollar, which are both typically serious headwinds for precious metals. Now that gold is getting some actual good news, it's cracking new records.
There may be further room for movement in gold, too, as the aforementioned interest rate cuts actually arrive (or arrive earlier than expected) and central bank purchasing of gold continues to surge. When adjusted for inflation, we're still a long way off from gold's all-time high of roughly $3,200 per ounce back in 1980—time will tell whether it will climb to such heights again.
