Gold prices continue to glitter near all-time highs, attracting investors seeking safe havens from a sometimes choppy economy. Gold futures peaked in April at $2,413.80 per troy ounce, marking an advance of as much as 16% year to date. And after a brief break, gold prices are on the move once again.
While gold's rise is fueled by investors viewing the shiny metal as a potential hedge against uncertainty, gold prices are also gaining support from a somewhat unexpected source: central banks around the world.
De-Dollarization Drives Gold Prices Higher
A move to de-dollarization is driving central banks' interest in gold, helping keep gold prices elevated. "The central banks are improving the overall quality of their reserves," Alex Ebkarian, co-founder of precious metals dealer Allegiance Gold, told Investor's Business Daily.
He says BRICS nations led by China and Russia are reducing their holdings of U.S. Treasury bonds and other dollar-based investments and instead buying more physical gold. The BRICS group includes the major emerging economies of Brazil, Russia, India, China and South Africa.
Ebkarian says the push toward precious metals is driven by worries over financial sanctions led by the U.S., including a drive away from the U.S. dollar as the world's reserve currency. "This is their way to vote against the U.S. dollar," said Ebkarian.
After Russia's invasion of Ukraine sparked a war between the two nations, the U.S. has imposed economic sanctions and restrictions on Russia, including freezing around $300 billion in Russian foreign holdings. The U.S. also has restricted transactions with Russia's central bank, drastically reducing Russia's access to international commerce.
Recently, a U.S. aid package for Ukraine allows for the seizure of Russian state assets located in America for use to aid Ukraine. Ebkarian says China is taking cues from U.S. seizures of Russian assets and is moving away from the dollar as a precaution.
Investor Fears Keep Gold Elevated
Consumer and retail investor sentiment is also driving up gold prices, says Ebkarian. "We're seeing around the world an increase in investor sentiment to having an asset they trust, that they want to hold and that they want to properly diversify from this ongoing devaluation and these geopolitical risks that we're seeing," he said.
Continued tensions in the Middle East, particularly since the outbreak of war between Israel and Palestine, have also contributed to a rise in gold prices. Gold futures spiked in April after tensions between Israel and Iran escalated.
Gold is seen by some investors as a potential store of value for its relative liquidity and for its use in jewelry and semiconductor manufacturing. The precious metal in 2024 has risen alongside other safe havens like silver and even alternative assets like bitcoin. And gold really started to shine bright for investors when it began to notably outperform bitcoin in mid-March.
Fed Rates, FOMO And the Future For Gold Prices
Gold prices could turn south if the Federal Reserve continues to keep interest rates elevated. In a research note, Goldman Sachs said gold tends to be less attractive when interest rates are higher, since bonds become more attractive at higher rates due to their higher yields.
Meanwhile, UBS says investors' FOMO (fear of missing out) is continuing to drive gold prices.
"We don't know what the future holds," said Ebkarian. "And because of all these uncertainties, what you want to consider is taking more of a preventive measure and diversifying a portion of your assets."
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