Why is the gold price hitting record highs?


On 12 April 2024, the price of gold shattered records, reaching a staggering USD 2,431.42 per ounce. This 30% increase year-over-year has sent shockwaves through the financial world, particularly exciting forex traders with a keen eye on this timeless asset. But what’s driving this golden phenomenon?

The safe haven: Why gold shines bright

Gold has captivated humanity for centuries, not just for its beauty, but also for its enduring value. Throughout history, it has played a significant role in the global financial system, earning a reputation as a store of value and a hedge against inflation.

These characteristics make gold an especially attractive asset for traders during times of economic uncertainty. Here’s why:

  • Tangible asset: Unlike currencies or stocks, which are essentially digital representations of value, gold offers a physical presence. In times of economic turmoil, some traders find comfort in owning a tangible asset they can hold onto.
  • Limited supply: Unlike many other commodities, gold has a finite supply. This limited nature contributes to its value proposition. In simpler terms, because there’s only so much gold in the world, its value tends to hold steady or even increase over time.
  • Inflation hedge: Historically, gold has performed well during periods of inflation. When traditional currencies lose purchasing power due to inflation, gold tends to retain its value relatively well. This makes it a valuable tool for traders seeking to hedge against inflation and protect their capital.
  • Safe haven asset: Gold is often seen as a safe haven asset during periods of economic turmoil or geopolitical tensions. When stock markets become volatile and currencies experience fluctuations, investors often flock to gold as a more stable investment. This increased demand can drive up the price of gold, potentially creating opportunities for forex traders.

Factors fuelling the gold rally

So, what’s behind the recent surge in gold prices? Several key factors are at play:

Geopolitical tensions

The ongoing conflict between Russia and Ukraine has sent ripples of unease throughout the global economy. This uncertainty can push investors towards safe havens like gold, with demand for gold bars in Europe surging by 300% in the first quarter of 2024 compared to the previous year.

Economic uncertainty

Fears of a recession are rising, with the International Monetary Fund (IMF) recently downgrading its global growth forecast to 3.6% for 2024. This economic slowdown can also increase demand for gold as a hedge against potential financial instability.

Central bank activity

The Federal Reserve’s recent pivot towards a more dovish stance, hinting at potential interest rate cuts in the latter half of 2024, has impacted the gold market. In a low-interest-rate environment, gold becomes a more attractive option compared to traditional fixed-income investments that currently offer minimal returns. For instance, the yield on the benchmark 10-year Treasury note has fallen to a record low of 1.2% in April 2024.

Physical demand

Recent trends in physical gold demand from consumers and central banks can also influence the price. In India, the world’s largest gold consumer, demand surged by 22% in the first quarter of 2024 compared to the same period last year, driven by the upcoming wedding season and rising disposable incomes.

On the institutional side, central banks around the world have been net buyers of gold for the past five years. China, a major player in this trend, has been accumulating gold for years and now holds the world’s second-largest reserves, estimated at around 3,000 tons, trailing only the United States.

China’s gold reserve. Source: World Gold Council

Their buying spree shows no signs of stopping, with reports suggesting they added a significant 150 tons to their reserves in just the first quarter of 2024. This growing appetite for gold from central banks, particularly China, could further support rising prices.

Gold price forecast: Navigating uncertainty

Predicting the future price of any asset is inherently challenging. Experts hold diverse opinions on the gold price outlook, with some analysts at Goldman Sachs predicting a further rise to $3,000 per ounce by the end of 2024, while others at JPMorgan Chase remain cautious, maintaining a neutral price target. Instead of chasing price predictions, focus on developing sound trading strategies based on thorough market analysis.

Gold historical price. Source: goldprice.org

Capitalising on the gold surge with VT Markets

CFD trading allows you to participate in the gold market by speculating on price movements without physically owning the metal. VT Markets offers a user-friendly trading platform where you can trade gold CFDs.

Here are some key strategies to consider:

  • Going long: If you believe the gold price will rise, you can go long by buying a gold CFD. You’ll then profit if the price increases by more than the initial margin you placed on the trade.
  • Going short: Conversely, if you anticipate a price decline, you can go short by selling a gold CFD. Profits are then generated if the price falls before you repurchase the CFD to close your position.

VT Markets also offers up to 500:1 leverage on gold, a tool that can amplify your potential profits. Leverage allows you to control a larger gold position with a smaller initial investment. For example, with 10:1 leverage, a $1,000 investment can control a $10,000 gold position. However, it’s crucial to use leverage responsibly, practicing sound risk management strategies like stop-loss orders to mitigate potential losses.

In addition to a user-friendly platform, VT Markets provides daily market analysis and valuable educational resources to help you make informed decisions and navigate the gold market with confidence. Plus, test your strategies risk-free with their demo accounts.

In conclusion, the factors driving the gold price surge are complex and multifaceted. Understanding these factors, coupled with a well-defined trading strategy and a commitment to risk management, can empower you to potentially capitalise on this golden opportunity. If you’re interested in learning more about gold CFD trading, explore the resources offered by VT Markets and take the first step towards joining the gold rush.