Well, we’ve been talking about when and why it would happen…
Gold prices soared to a record high of over $2,100 per ounce on Sunday, Dec 3.
This marks a 14% gain for gold prices in 2023 – with a 4% jump in the last week alone. At the time of this writing, spot prices are hovering above $2,000. And some analysts predict gold may rally again in the coming months.
Here’s what’s behind gold’s record rise:
Foundationally, gold is widely considered to be a safe-haven asset that can hedge against risk and diversify a portfolio.
And when the prices of traditional paper assets falter, as we’ve seen in 2023, gold tends to hold its value or even jump in price as investors rush to buy.
For over a year now, many gold investors have been watching the Fed’s ongoing, aggressive rate hike battle against persistent inflation. And reactions to Fed moves have been one of the precious metal’s biggest price drivers.
However, the latest inflation figures suggest the Fed is making progress with getting consumer prices under control.
And a banking crisis in March tightened the credit market, which may also have helped cool the economy and slow inflation.
As a result, the Fed may pivot to rate cuts sooner than later. According to Forbes Advisor, they see a 56% chance of a rate cut in July.
Analysts say the expectations of a rate cut explain this recent gold rally. And a rate cut may also help push the price of gold higher because, historically, gold tends to rise as interest rates fall.
The question is, will the rally continue through 2024? If so, what other forces could push gold higher?
While some experts believe gold’s current rally is just getting started, others are uncertain about gold’s potential to deliver more price gains.
Critics believe gold may lose its appeal if the economic and geopolitical situation improves, and the US dollar strengthens.
Aaaaand, they’ve been singing that song for years. Yet, here’s the reality of the situation:
Owning gold isn’t some “get rich quick” play. It’s a long-term risk-management move designed to protect your wealth from downside pressures that may hurt traditional income- or dividend-producing assets.
Yes, the global economic situation may improve.
We all hope it does.
But the truth is the US government is over 33 trillion dollars in debt and not taking in enough tax revenue to cover the bill. Our debt is growing.
And with a ballooning debt, spending and printing may continue to devalue the dollar.
Meanwhile, gold may experience a correction, just as all assets do.
We’ve seen gold pull back after rallies many times in history, just as it has by a few dollars since its record high on Sunday.
But when you look at gold’s performance and the US dollar’s performance next to each other over time, the staggering numbers tell the whole story:
Since Nixon took the US off the gold standard in 1971, the dollar has lost over 85% of its buying power. At the same time, gold has risen a whopping 4,850%.
As we head into 2024, we’re still facing a slew of econom—–ic uncertainties, including a continued trade war with China (whose central bank bought the most gold of all central banks in 2023) and further de-dollarization efforts from BRICS nations.
On top of that, the military confrontation in the Middle East and the looming threat of a possible global recession have contributed to a sense of uneasiness and instability among vigilant investors.
If all these worldwide pressures and risks intensify, they may trigger a market sell-off or crisis, which could push gold’s price to another record high in the coming months.
And soon, we may look back and say, “Remember when gold was still a bargain?”
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