The rising price of gold
The gold price breaks the $4,000 mark
The price of goods has just risen to $4,000 for the first time. This record high comes after months of strong price increases in gold. The chart shows the gold price over the last 5 years. The price increase is particularly strong since the last quarter of 2023, when it was just under $2,000 an ounce; it has doubled in less than two years.
Gold is often seen as a ‘safe-haven’ asset because investors view it as a place to hold their assets during times of economic uncertainty, when other assets carry a higher risk. The risk factor in the international asset market has increased due to the conflict between Ukraine and Israel. Investors worry that political instability in these areas can trigger higher oil and gas prices, which could reduce world economic growth.
There are also concerns about increased protectionism in the United States and the threat of a trade war. The US has just threatened China with 100% tariffs on goods imported from China in response to Chinese restrictions on the export of its rare earth metals. The volatile trade conditions facing the US have taken investors away from the US dollar and into gold. The US dollar index, a weighted basket of currencies against the US dollar, has fallen by over 10% this year. In addition, there are concerns about high US inflation, which has further worried holders of US dollars and led them to purchase gold.
When asset prices increase significantly, speculators may buy the asset to profit from the price increase. The significant increase in the gold price has attracted speculators seeking to profit from the expected future increase.
The increase in the gold price has been very positive for the world's gold-producing nations such as China, Russia and Australia. Gold-producing firms have seen their profits increase due to rising gold prices. The world's biggest gold producer, Newmont Corporation, is a US-based gold mining business that produces gold in North and South America, Africa and Australia. It has seen its share price double since February this year.
The higher price of gold is affecting the prices of products made with gold, such as jewellery. Gold is also used in the production of other goods, such as electronics, medicine, dentistry, and aerospace, which will add to their business costs.
The increase in the price of gold over the last year has macroeconomic and microeconomic implications, and it will be interesting to see whether the gold price continues to rise or whether a gold market ‘bubble’ is forming that could lead to a price correction in the future.
Questions for discussion
- What are the factors that have led to an increase in the demand for gold?
- What factors limit the supply of gold?
- How does the increase in the price of gold affect the jewellery market?
- How important do you think gold's historical importance is in affecting its current value?