Gold Price Hits Record Highs as Countries Ease Reliance on US Dollar

The price of spot gold reached $2,364 per ounce on Tuesday after hitting record highs for seven consecutive sessions and trading at $2,336 per ounce on Monday. Year on year, gold is up 16.5 percent.

The main driver of the price increase is investors who expect the Federal Reserve to cut its benchmark interest rate. However, the surge is boosted by other things, including central banks, led by China, buying up gold to ease reliance on US dollars.

Central banks view the precious metal as a long-term stock of value and a safe bet during times of economic and geopolitical turmoil.

The precious metal is considered to be a resilient investment. When interest rates fall, gold prices typically rise, as bullion becomes more appealing than income-paying assets such as bonds. Investors also trust gold to be a hedge against inflation, betting bullion will retain its value when prices rise.

China purchased gold for the seventeenth consecutive month in March, adding 160,000 ounces to bring reserves to 72.74 million troy ounces of gold, according to Reuters.

Central banks could potentially move away from US dollars and buy gold amid geopolitical uncertainty, as per an April 9th UBS research note, and as China builds its reserve, demand is driving up prices already boosted by usual investors.

Chinese buyers are relying on gold as an alternative asset during downturns in property valuations and equity prices in past years, according to an April 9th Capital Economics research note. Other central banks, including India and Turkey, are also working to increase their gold reserves. India’s GDP growth is driving those purchases, according to UBS.

According to Ulf Lindahl, CEO at Currency Research Associates, central banks demanding the precious metal is a sign of lessening reliance on the dollar, as reported by CNN, and dollars are increasingly unappealing for central banks that want to decrease economic reliance on the US, Lindahl added.

Countries not partnered with the US in any way may accumulate gold to “mix away from dollars” to reduce vulnerability to sanctions, according to a March JP Morgan research note. Central bank purchasing has fueled the rise in gold prices since 2022, according to the note.

Gold may be entering a strong period, as central bank uptakes of gold in 2022 were more than double the average annual purchase across the decade prior, according to JP Morgan.

The surge in prices comes as the US Treasury Secretary Janet Yellen visited China to discuss financial stability in US-China relations, including what Yellen termed the overproduction of Chinese electric vehicles. Oil prices are also increasing, creating a threat to the US economy, according to Mark Zandi, chief economist at Moody’s.

It is probable that higher oil prices will stoke concerns over inflation, boosting gold prices, as per the UBS research note.

Why has there been a surge in the price of gold?

Some investors are taken with the hype around gold bullion as prices surge, driving them ever higher. On Reddit, purchasers of gold often post threads about their stocks.

Costco started to sell gold bars online in August and silver coins in January. The company may now be selling as much as $200 million in gold and silver each month, according to an estimate by Wells Fargo. Chief Financial Officer Richard Galanti told analysts in December that the company had sold more than $100 million of gold bars in the previous quarter.

“The accelerating frequency of Reddit posts, quick on-line sell-outs of product, and [the company’s] robust monthly eComm sales suggests a sharp uptick in momentum since the launch,” the April 9th investment note said.

It’s also worth noting that the precious metal is a traditional asset to hold during political uncertainty and upheaval. Voters in more than sixty countries are set to head to the polls this year, including for the US presidential election. That uptick in geopolitical and economic unpredictability underscores the precious metal’s stable value.