The theory goes that crises are the gasoline that drives the price of gold. When Lehman Brothers collapsed in 2008, ushering in the dark period of the Great Recession and shaking stock markets around the world, the price rose. When risk premiums in southern European countries shot up in the middle of the sovereign debt crisis in 2010, the price of gold recovered. In 2020, as the coronavirus pandemic raised fears that the economy would falter, gold once again lived up to its safe-haven status, hitting new records and becoming the year’s unforgettable star asset.
Now that level has been left behind. Gold this Monday exceeded $2,100 an ounce, its all-time high, in a scenario that lacks the apocalyptic scent of the previous ones. The economy is growing, particularly in the United States (though not as much in Europe, and the extent of the housing bubble in China is worrying); The battle against inflation is not yet won, but there is cause for optimism and the stock markets are having a great moment: the US S&P 500 index is hitting annual highs after rising 9 in November, its best month of 2023 % and saw a similar improvement in the European Eurostoxx 50.
Then why do investors put their capital into this precious metal? Experts see several reasons. For Leopoldo Torralba, chief economist at Arcano Partners, the foreign exchange market has an influence. “The value has increased recently, in particular due to the devaluation of the dollar, to compensate for this through transactions mainly in this currency. But given that gold is structurally designed to cover inflation in the future and this is on track to normalize, it is normal for gold to see some downward correction in the coming months,” he predicts.
For Carsten Menke, analyst at Julius Baer, “the recent rally was driven by speculative traders in the futures market, rather than safe-haven seekers in the physical market.” He believes that the comments from US Federal Reserve Chairman Jerome Powell, on Friday, in which he had raised hopes that interest rates would be cut earlier than expected, encouraged the increase.
The rise, 15% so far this year, gained momentum with the bankruptcy of Credit Suisse in March but did not slow with the bank’s rescue by its rival UBS. And it also feeds into a tense geopolitical situation due to the conflict between Israel and Hamas, which is joining the war in Ukraine and which shows no signs of ending in the short term. This lack of stability traditionally favors gold, although other factors may come into play. According to a report by the World Gold Council, one in four central banks plan to increase their gold reserves in the next 12 months, which could contribute to their revaluation.
Bitcoin breaks $40,000
The good moment for gold and the stock market coincides with the rise of cryptocurrencies. Bitcoin has broken through $40,000 for the first time since April 2022 and is already recording a 150% gain for those who bought on January 1st. The crypto winter, the period of hardship that they have endured in recent months when problems such as the collapse of TerraLuna or the bankruptcy of the FTX platform piled up, seems to be behind us for the time being.
With such a speculative asset, it is not always easy to find reasons for its sudden movements. However, those in the industry believe that the next cut in interest rates by central banks and the expectation of a future approval of an ETF that will make it easier for new investors to enter are behind the progress.
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