The gold price development is going through the roof. Getty ImagesGetty Images/ Diy13, Israel Sebastian, yuruphoto
The price of gold has risen by more than 25 percent in the past six months. An all-time high was reached again at the beginning of the week.
Experts assume that the record hunt can continue in the coming weeks. Various factors would favor this development – including interest rates, the economic situation and current crises.
Despite the all-time high, it is still worthwhile for investors to enter the market. “It is always a good time to invest in gold,” says Constantin Behr, CEO of Golden Gates Edelmetalle AG.
The hunt for records continues unabated: After the all-time high of the past few days, the upward trend in the price of gold is continuing this week. The price has been rising since October last year and is now almost 2,360 US dollars (equivalent to 2,170 euros) for one gold ounce (31.1 grams).
Many private investors consider gold to be a safe investment. “Gold is a safe haven, especially in times of crisis or in turbulent economic and political times,” says Philip Krenz, asset manager at BV Bayerische Vermögens GmbH in Munich.
“Gold is a safe haven, especially in times of crisis.”
Philip Krenz
(asset manager)
This is also proven by the high gold reserves of the world‘s central banks: According to the World Gold Council, the lobbying organization for the gold industry, central banks currently hold 35,938.6 tons of gold. However, the expert warns: “If this long-term strategy of the central banks changes, the resulting gold sales could flood the market and thus depress the price of the precious metal.”
However, looking at the current price development, there is little sign of this so far. Quite the opposite: There are various factors that have caused the gold price to rise by almost 20 percent since mid-February. In an interview with Business Insider, experts assume that these factors will continue to ensure further profits in the coming weeks and months. We clarify the most important questions about the precious metal.
Why is the price of gold currently so high?
The price of gold goes up and up. Why? “In one word: China,” says Adrian Ash, Director of Research at BullionVault. The world‘s second-largest economy has fallen into a financial crisis, driving up demand for gold in key mining, import, central bank and consumer markets.
“Speculative trading in Shanghai has also gone into a kind of frenzy in recent weeks,” said the expert. While speculation in New York and London gold derivatives has skyrocketed, the increase in Chinese gold demand is in “stark contrast” to Western investment flows. The Chinese central bank continues to buy gold at any price, thereby diversifying the risk away from the dollar and the threat of US sanctions.
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Constantin Behr, CEO of Golden Gates Edelmetalle AG, uses a different explanation. He says: “The stock markets are at a very high level right now. Due to the uncertain economic situation, profits are taken and hedged with gold, which increases the demand for gold.”
In addition, purchasing real estate is becoming increasingly difficult for the general population. “Gold is an alternative material asset,” says the business economist. Similar to Adrian Ash, he also argues with the current strategy of the central banks. In general, the board is of the opinion that “various factors” are favoring the significant increase and further gold price development.
What factors influence the price of gold?
Many, the experts agree. Financial advisor Philip Krenz explains: “Gold tends to rise, for example, in phases of higher inflation rates.” In bad times or looming crises, many investors would flee to the golden asset class, which would then serve as crisis protection. “The demand from global central banks, for example, also plays a significant role, as we could recently see from the significant increases in gold reserves.”
Constantin Behr lists other factors such as interest rates, the economic situation and current crises. Demand also plays a crucial role, especially in uncertain times. “Interestingly, this effect also increases when the price of gold has already risen, as rising prices attract additional investors and falling prices reduce demand,” said the board of Golden Gates Precious Metals. This leads to a self-reinforcing cycle.
“There has never been a currency that has been able to retain its value over the long term.”
Constantin Behr
(Board of Golden Gates Edelmetalle AG)
Not to be forgotten are general cost increases. “The extraction, recycling and minting of gold involves increasing costs, which are ultimately reflected in the price,” says Behr. Different requirements, personnel costs and administrative costs are key cost drivers. If the price of gold is too low, this would affect production, although gold is also needed for technologies to deal with climate change.
In the long term, the price of gold reflects the loss in value of currencies. “There has never been a currency that has been able to maintain its value in the long term.” Basically, it can be said that the price of gold rises or falls due to a combination of these factors. According to the board, the exact dynamics depend on current market forces and long-term trends.
What forecasts are there for the gold price development?
Of course, it is not possible to make exact predictions about gold price developments. Experts are divided on how the gold price will develop. “The strength of the gold price rise is unprecedented, setting a new record for eight consecutive days in the London bull market,” says Adrian Ash of BullionVault. But: Together with the risk of a speculative outbreak in Shanghai, it is very likely that this trend will take a break or even decline in the near future.
In the past six months, the price of gold has risen by 30 percent. “In the longer term, however, the extent of this increase is not unusual,” says the expert. Gold has already risen noticeably several times in the past – nine times during the inflationary 1970s alone, during the global financial crisis and most recently in the first wave of the corona pandemic.
“The strength of the gold price rise is unprecedented.”
Adrian Ash
(Director of Research bei BullionVault)
Constantin Behr ventures a somewhat more positive forecast: “Due to the ongoing economic uncertainty and the unstable market situations worldwide, I think that gold prices will continue to rise steadily in both the medium and long term,” says the board of Golden Gates Edelmetalle AG. Gold has always proven to be a safe haven in times of crisis. The intrinsic value is undisputed.
The expert is convinced: “In view of increasing geopolitical tensions and unpredictable global developments, the need for a valuable and stable investment such as gold is becoming ever greater.” He therefore advises investing in gold now in order to be able to benefit from the expected price increases .
Is now a good time to invest in gold?
Basically, the experts are of the opinion that a gold investment can still be worthwhile. “Golden times could once again lie ahead for the precious metal. In addition to the positive price development, there are good fundamental reasons for this,” says asset manager Philip Krenz. For example, the limited availability and the de-dollarization of central banks speak in favor of higher prices in the medium and long term. Added to this is the associated continuous demand for gold from central banks and its firm position as a safe haven in times of crisis.
Adrian Ash is a little more skeptical: “No financial market moves in a straight line forever,” he says. One could consider gold a “hot trend” that is “now at the end of this particular phase.” The expert thinks that demand in China could well cool down as authorities warn against speculation. The weight of Western gold sales could put pressure on prices in the summer – just as the number two consumer, India, enters its seasonal quiet period.
But: “Looking forward, gold has always offered investors a way to diversify risk to reduce losses when other assets fall, without affecting overall returns in the long term,” says the BullionVault expert.
What are the advantages of gold?
Constantin Behr sees “numerous advantages” compared to other forms of investment. “Especially when it comes to safely building up or securing assets without having to rely on annual returns or quick price gains,” said the board. Gold makes you independent of the monetary system and allows you to flexibly exchange it for any currency you want.
Physical gold is also completely tax-free. Because: There is no VAT when purchasing. In addition, after a holding period of one year, the withholding tax also no longer applies. In addition, gold is a mobile asset with a high density of value that, unlike real estate, can be easily transported. In addition, gold is accepted worldwide as a recognized currency, without restrictions like other currencies.
And gold is often “viewed as a safe investment. It is independent of the fluctuations of other asset classes such as stocks and bonds. The limited availability of the precious metal helps to strengthen its value preservation function,” says Constantin Behr.
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Asset manager Philip Krenz also points out the strong increase in the price of gold. “Over the past two decades it has certainly been able to keep up with the strong US stock market,” said the expert. Since the launch of the first gold ETF in the United States in 2004, gold has gained around 340 percent. For comparison: The S&P 500, including dividends, is around 360 percent.
Disclaimer: Stocks and other investments generally involve risk. A total loss of the capital invested cannot be ruled out. The articles, data and forecasts published are not a solicitation to buy or sell securities or rights. They also do not replace professional advice.