Four Reasons Why Gold Prices Are Moving Up

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Four Reasons Why Gold Prices Are Moving Up
Deepika Asthana - 11 August 2019

The yellow metal has taken to showing its lustre in the recent past. Gold prices have been moving steadily higher since the beginning of the year and touched a six-year high in US dollar terms in July 2019. In a high risk environment, a rise in gold prices is intuitive considering its value as a hedge against uncertainty. However, there are a host of factors that are perpetuating this increase in gold prices. The four major ones are discussed below.

Dovish Monetary Policy

Central bankers across the globe have adopted a dovish stance and are now leaning towards monetary easing. From the US Federal to India’s Reserve Bank of India (RBI), we have seen a spate of rate cuts. This seems to have triggered a buying gold. Lower interest rates present less of an opportunity cost of holding gold, as the metal provides no yield and often comes with storage and insurance fees.

Global Growth Concerns

Gold has always held appeal as a “safe haven” asset. In periods of uncertainty, investors tend to shore up the yellow metal. The ongoing trade spat between the United States and China has raised serious concerns about global growth. Earlier this year, the International Monetary Fund (IMF) cut its 2019 outlook for global growth to the lowest level since 2009. More recently, in its quarterly update, the IMF said that trade tensions could cause the global economy to stall further. It also said that it expects global growth to hit 3.2 per cent in 2019 and 3.5per cent in 2020.

Geopolitical Tensions

It addition to being perceived as a “safe haven” asset, Gold is also preferred by many as a potential hedge against geopolitical uncertainty. This value primarily stems from the fact that gold is not tethered to any one country, regime, political or economic system. This makes it particularly valuable in uncertain times. In that regard, the biggest concerns currently plaguing global markets are the conflicts between the United States and Iran, as well as, the intermittent breakdowns in the ongoing US-China trade negotiations. Additionally, the political turmoil in Britain coupled with the Brexit negotiations further boosted gold’s investment appeal.

Central-Bank Gold Buying

Over the past several years, Central banks across the world have been shoring up on gold. According to the World Gold Council (WGC), net central bank gold purchases in 2019’s first quarter were 145.5 metric tonnes (mt), the highest first-quarter level since 2013. The demand remained intact in April and May as well, at a combined 92.9 mt of bullion.

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