Is there an end to the gold rush? Is this the point at which we should start to worry?

The price of gold is reaching another absolute record high above $4200 per ounce, despite being significantly below $3000 per ounce earlier this year. The increase this year has already reached over 60%, the largest since 1979. While the $4000 level seemed far-fetched at one point, there is now growing confidence that gold will reach another absolute record of $5000 per ounce. Is this the moment we should start to worry? Or, on the contrary, do current market conditions mean that a new milestone in the gold market is only a matter of time? How does investing in gold in Polish złoty compare to investing in US dollars?

Bull market in precious metals

Gold is one of the better assets this year, exceeding the return on the S&P 500 indexOf course, during a bull market in precious metals, metals other than gold are experiencing stronger gains. Currently, gold is the fourth-highest-growing commodity, behind platinum, silver, and palladium. However, it should be emphasized that gold is setting new historical highs practically day by day, week by week.Silver recently joined this group. When the asset's price is at its peak, it's difficult to expect further spectacular gains. However, in the case of gold, the increase has already reached over 60% this year, representing the largest return since 1979. The foundations for gold's price growth have been built for years, including through strong purchases by central banks and solid demand from other segments.

This year hasn't been good at all from a fundamental perspective – jewelry demand is at its weakest in years, and central banks are reducing their purchases compared to the previous three years. On the other hand, we've been seeing strong buying by ETFs for many months now. Of course, investors must first deposit money into the funds so that they can then buy gold on the market.. Nevertheless, this was the missing element to establish a significant bull market. Looking at history, the current bull market has the potential to continue in the coming years. The previous one, which ended in 2011, lasted for 10 years. Now we have to wonder if the current one started as early as 2016, when gold reached close to $1000 an ounce, or is it more likely to be 2018, when the Fed resumed interest rate cuts and asset purchases, or 2023, when gold finally breaks out after consolidation related to high interest rates? Regardless of the date of the bull market, assuming history repeats itself, it could continue. Not only because of the timing, but also because of the scale of the increases.

Forecasts point to a level of $5000

Jamie Dimon from JP Morgan He indicated that gold could easily break $5000 or even $10000 an ounce under current market conditions, though he himself states that he is not an investor in the asset. Most forecasts for next year point to a level of $5000. Technically, we have not yet reached levels where gold would be at its most overbought in history.While conditions for a continued bull market are currently very good, continued growth requires caution. Currently, we can say we're close to a potential peak.

Historically, such large annual increases in gold prices have not occurred. In the past, increases of 30-40% were followed by a slight decline or a rise of several percent the following year. If the current increases threaten the stability of the financial market, as was the case in 2009, 2011 or 2020, when the required margin to maintain positions on futures contracts was raised on stock exchanges, this could be a sign of the beginning of the end of the bull market or at least indicate a correction.On the other hand, if solid trade agreements were signed, wars ended, interest rates began to rise again, and the dollar began to appreciate significantly, any of these things could also bring the current bull market to an end.

Gold is considered a safe haven and has returned over 60% since the beginning of this year, and over 120% over the last five years. However, the Polish złoty has also performed quite well over the last two or three years, which limits the growth. gold prices in Polish zloty terms. The gold's growth in PLN terms this year is "only" 42%, while over the past five years it has been less than 110%. If we were to expect the zloty to weaken in the future over the longer term, the potential for gold price growth in Polish zloty terms may seem greater.

Today, gold costs $4232 per ounce, which translates to PLN 15443 per ounce. The dollar is worth PLN 3,6491, the euro is worth PLN 4,2514, the pound is worth PLN 4,8997, and the franc is worth PLN 4,5780.

Source: Michał Stajniak, CFA, XTB