How Gold Became One of the World's Hottest Investments
The price of gold has surged to an all-time high of $2,772 per troy ounce this week, marking a 33% increase year-to-date. This performance has outpaced the broader stock market, including the Nasdaq 100, by approximately 10 percentage points. Since the bull market began in October 2022, gold has yielded a 67% return compared to the S&P 500’s 63%.
Key Factors Driving Gold's Rally:
1. Central Bank Demand: Global central banks purchased a record 483 tons of gold in the first half of the year, with significant buying from Turkey, India, and China. This trend is largely driven by countries seeking to diversify away from the US dollar due to fears of financial sanctions and sovereign debt risks.
2. Geopolitical Tensions: Heightened global instability—exemplified by Russia's invasion of Ukraine and ongoing tensions in the Middle East—has pushed investors towards gold as a stable store of value. The U.S. debt situation has also prompted concerns about the safety of Treasurys.
3. Political Climate: Speculation around a potential Trump presidency is influencing gold prices. Increased government deficits and inflation fears could drive investors to seek gold as a hedge against financial instability.
4. Interest Rates: Historically, falling interest rates boost gold prices. With the Federal Reserve expected to implement multiple rate cuts in the coming year, lower rates are likely to support gold’s upward trajectory. Recent cuts from central banks worldwide indicate a trend toward looser monetary policy.
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