Gold at $2500? The bull market for precious metals continues

Following the recent spike in tensions in the Middle East, gold has reached a record high of $2400 per ounce. Since the beginning of the year, the price of gold in dollars has increased by 13 percent, and in Polish zlotys - even by 18 percent. It may rise further as geopolitical tensions remain high and a U.S. interest rate cut is imminent. Gold may therefore approach the psychological level of $2500 per ounce.

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The bull market for precious metals continues

In recent days, the price of gold on the global market has been at the level of $2400 per ounce (about 31 grams). Its price increased by 13%. since the beginning of the year, thus setting a new all-time record. Gold prices rose three times faster than prices of other commodities. To buy a standard 12 kg gold bar, you need to have a staggering amount of PLN 900. dollars. We are currently dealing with a situation where gold prices are rising and the US dollar is strengthening at the same time. This causes the price of gold expressed in Polish zloty to increase more than the price expressed in dollars. Since the beginning of the year, the dollar has strengthened against the zloty by over 4%, which means that the price of gold expressed in Polish currency has increased by almost 18%.

The gold rally is driven primarily by market demand for safe assets. The current situation in the Middle East is another in a series of events increasing geopolitical tension in the world. At the same time, there is a war going on in Ukraine and numerous smaller crises. We also have a year when representatives of countries representing 60 percent go to vote. world GDP, including Americans electing a president. This makes investors buy gold as a "safe haven". Gold has a long history of providing protection in difficult times and in the face of increasing geopolitical uncertainty. It benefits from the lack of credit risk, negative correlation with risky assets and many years of history.

Gold also benefits from expected interest rate cuts in the US, although - due to the good economic situation in the US - the forecast level of rate cuts is decreasing. Currently, the market predicts that the first reduction will take place in June, and that rates will fall twice this year. As a result of the drop in rates, the interest rates on cash assets competitive with gold are also falling.

Gold as a capital investment for hard times

For American investors, gold also serves as a hedge against inflation, which also supports current demand. Investors fear that inflation in the US may remain above 2% for a longer period of time. In this context, it is worth remembering that gold protects against inflation in the US, while historical data from Poland show that gold does not protect against inflation in PLN.

Record gold prices are supported by central bank purchases, which have reached record levels over the past year. In 2022 and 2023, central banks purchased over 1000 tons of gold per year on the market. Last year, China increased its reserves by 225 tons of gold (to 2235 tons). The second most important buyer is National Bank of Poland, which increased gold reserves by 2023 tons in 130. At the moment, Poland stores almost 13 percent in gold. reserve assets, and the NBP's goal is to increase this level to 20%.

However, central banks are only responsible for about 25%. demand for gold. Half of the world's demand for this precious metal comes from the jewelry industry, where demand is mainly driven by customers from China and India. The electronics industry is responsible for 10%. demand, and the rest goes to investors in the form of gold coins and bars.

Although gold has the ability to maintain its value over time, its price can be highly volatile in the short term. Moreover, gold does not generate a constant rate of return as we know from, for example, bond interest rates or stock dividends. Instead, it can provide some diversification to your investment portfolio. In the past, it usually provided lower returns than the stock market, and this may be the reason why individual investors refrain from investing in gold. The latest survey eToro The Individual Investor Pulse from March shows that 10 percent Polish investors plan to increase the share of raw materials in their investment portfolios this year. 8% plan to do the same. global investors.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.