Inflation pushes the price of gold towards new records

The price of gold has recently reached a new all-time high, hitting $2,729.30 per ounce on October 21, 2024, what does inflation have to do with it?

This increase represents a gain of over 30% since the beginning of the year, marking an important milestone for the commodities market. The surge in gold prices has been fueled by a combination of factors, including rising geopolitical tensions and growing global inflation.

Gold price and inflation: a complex relationship

Historically, gold has been considered a safe haven during periods of economic uncertainty. Its ability to maintain value during crises makes it a preferred choice for investors, especially when financial markets show signs of instability.

With the increase of inflation at a global level, many investors seek to protect their capital by investing in gold. This precious metal has a long history as a hedge against inflation, given that its value tends to rise when the purchasing power of the currency decreases.

In recent years, inflation has become an increasingly pressing concern for economies around the world. 

With the increase in energy and food costs, combined with the stagnation of wages in many areas, the cost of living has risen rapidly. This has pushed investors to seek safer assets, such as gold, which traditionally offers protection against the loss of value of fiat currencies.

Another crucial factor that has pushed the price of gold to historic highs is represented by the tensions in the Middle East. The ongoing conflicts in the region and political uncertainty have led many investors to seek refuge in gold.

Gold is seen as a safe asset, a refuge asset that has historically proven to protect investors’ portfolios during periods of high volatility and geopolitical risk.

In addition to the Middle East, the fierce competition of the presidential elections in the United States has added an additional layer of uncertainty to the global landscape. 

Investors are worried about possible political unrest and the economic changes that could result from a new government. This climate of uncertainty has further contributed to strengthening the value of gold.

Gold Price Forecast: Towards $3,000?

According to Vivek Dhar, analyst at the Commonwealth Bank of Australia, the future of gold is bright. Dhar predicts that gold futures could rise to an average of $3,000 per ounce by the fourth quarter of 2025. 

His forecasts are based on the anticipation of further interest rate cuts in the United States, which should push the dollar down and further stimulate the demand for safe-haven assets like gold.

Interest rate cuts are generally seen as a positive factor for gold prices. A low-rate environment reduces the opportunity cost of holding gold, which does not generate interest. Additionally, a weaker dollar makes gold cheaper for foreign investors, thus increasing demand.

The increase in the price of gold has not been an isolated phenomenon. Silver, often considered the “younger brother” of gold, has also seen a significant increase in its prices. 

The metal has reached its highest level since 2012, also benefiting from the increase in demand for safe-haven assets and economic uncertainty. Although silver has a greater industrial use compared to gold, its nature as a precious metal also makes it a sought-after asset during periods of economic volatility.

Gold Price and Inflation: a Shield Against Loss of Value

Inflation, as already mentioned, is another key element that has fueled the demand for gold. When inflation rises, the value of currency tends to fall. 

This scenario leads many investors to seek assets that maintain their value over time, and gold has proven to be one of the most effective instruments to achieve this goal. 

Unlike traditional currencies, gold cannot be printed or manipulated by governments or central banks, making it a stable store of value.

In the current context, with inflation continuing to rise in many parts of the world, gold offers protection against the decline in purchasing power. The expectations of persistent inflation and a possible global economic slowdown make this metal an attractive option for many investors.

Conclusion

The new record reached by the price of gold is the result of a combination of economic and geopolitical factors. Rising inflation and international tensions have led investors to seek safe assets, pushing gold to levels never seen before. 

With forecasts predicting a further increase in prices in the coming years, up to $3,000 per ounce by 2025, gold remains one of the most important investment choices for those seeking stability in an uncertain world.

The price of gold will continue to be closely linked to the trend of inflation and geopolitical risks, confirming its central role as a store of value for the future.