• Investing.com: Gold to Reach $3000 in 12 Months Says Citi
  • Investopedia Lists 7 Reasons to Own Gold
  • Finews First: Will the Gold Rush Continue?

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Investing.com: Gold to Reach $3000 in 12 Months Says Citi

According to the article by Investing.com, Citi analysts predict gold prices to surge to $3,000 by 2025 due to strong physical demand, central bank purchases, and macroeconomic factors. They foresee average prices trending higher from 2H24 to 2025, testing nominal average prices regularly.

Asymmetric risk skew has already shown resilience, and exceptional U.S. growth turning negative could drive more buying into duration and haven assets, says the article. Uncertainty over the U.S. election, interest rates peaking, and public sector demand for gold also support this forecast, says Investing.com.

Finews First: Will the Gold Rush Continue?

The price of gold has risen by more than 17% since the beginning of the year, reaching $2400, writes Finews First in their article. This behaviour has been widely discussed and is historically broad and rapid, according to the article. The rise in gold coincided with rising real interest rates, a stronger dollar and continued increases in risk capital. The gold price has been inversely correlated with changes in US real interest rates and has performed well since at least 2006, says the writer.

According to the article, global central bank demand for gold has doubled since 2022 and has continued to do so in the first quarter of this year. China, the world’s largest gold producer, has increased its gold reserves between 2022 and 2023. Chinese consumers appear to have channelled some of their savings into buying gold, and central bank reserves diversify the attractive investment opportunity that is surging gold. The risk of a return of inflation is also favourable for gold, as a real asset it provides a hedge against excessive inflation.

Investopedia: 7 Reasons to Own Gold

Investopedia lists 7 reasons to own gold, as follows, stating that the order does not necessarily reflect the importance:

1. Weakness of the US dollar

The U.S. dollar is one of the most important reserve currencies in the world, but when the value of the dollar declines against other currencies, as it did from 1998 to 2008, people often flock to the safety of gold and gold prices rise. The gold price nearly tripled between 1998 and 2008, reaching the $1,000/oz. milestone in early 2008, and nearly doubled between 2008 and 2012, crossing the $2,000 mark.

2. Inflation hedge

Gold can be a hedge against inflation because its price tends to rise when the cost of living rises. In years of high inflation, the price of gold can soar and the stock market can plummet. This is because when fiat money loses purchasing power due to inflation, gold tends to rise along with everything else because it is priced in units of that currency. Additionally, people may begin to buy gold when they believe their currency is losing value because gold is considered a good preserver of value.

3. Protection from deflation

Deflation is defined as a period of falling prices, slowing business activity, and an economy burdened by excessive debt. Deflation has not occurred globally since the Great Depression of the 1930s (although a small amount of deflation did occur in parts of the world after the 2008 financial crisis). During the Great Depression, the relative purchasing power of gold rose sharply while other prices fell sharply. This is because people chose to hoard cash and the safest place to hold cash at the time was in gold and gold coins.

4. Geopolitical uncertainty

Gold retains its value not only in times of financial instability, but also in times of geopolitical uncertainty. Gold is often referred to as a “crisis commodity” because when global tensions rise, people flee to the relative safety of gold. In such times, gold often outperforms other investments. Gold prices often rise the most when confidence in governments is low.

5. Supply constraints

Since the 1990s, much of the supply of gold in the market has come from the sale of gold bullion from the vaults of the world’s central banks. This selling by the world’s central banks slowed significantly in 2008. At the same time, the production of new gold bullion from mines has been declining since 2000.

6. Increasing demand

In the past, rising wealth in emerging market economies boosted demand for gold. In many of these countries, gold is an integral part of the culture. In China, where gold bars are a traditional form of savings, gold demand is stable. India is the world’s second largest gold consumer and has many uses, including jewellery. Therefore, the Indian wedding season in October is traditionally the time of year when gold demand is at its highest worldwide.

Gold demand is also growing among investors. Many people are beginning to view commodities, especially gold, as the investment class to which they should allocate their money. In fact, the SPDR Gold Trust (GLD) has become one of the largest and most frequently traded exchange traded funds (ETFs) in the United States.

7. Portfolio diversification

The key to diversification is finding investments that are not closely correlated with one another. Gold has historically been negatively correlated with stocks and other financial instruments. Investopedia.com also gives the following historical examples and states that a properly diversified investor can reduce overall volatility and risk by combining gold with stocks and bonds in a portfolio:

  • The late 1970s were a great time for gold, but a terrible time for stocks.
  • The 1970s and 1980s were great for gold, but terrible for stocks.
  • The late 1990s to mid-2000s were great for stocks, but terrible for gold.

 

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