Movement of the price of gold
The historical role of gold and silver is to protect assets from inflation and liquidity. The price of gold thus historically rises (above average) during crises. This means that we can always find a buyer for our gold and silver because it is a means of payment in itself. Since 1971, we have been living in a world where paper money is no longer backed by gold. Because of this, paper money is worth less and less. And that is the reality of inflation. Paper money is created out of nothing and sooner or later its value returns to zero. The dollar, the strongest paper currency in the world, has lost – 98% of its purchasing power against gold. This of course has a positive effect on the movement of the price of gold.
Just from 1970 to today, because of this, the price of an ounce of gold has increased from 35 to today’s approx. 1800 dollars. The price of gold thus increased by a dizzying 51x or 5,100%!
Image: Smart money (big financial institutions) and central banks are buying record amounts of gold.
Gold price prediction. The price of gold is currently below its all-time high, and may be preparing to enter another uptrend. The desire to safely preserve value and growing concern about the coming recession have contributed to the recent economic upswing. On the other hand, the latest epidemic in the world has contributed to the fear and uncertainty that is now plaguing the financial markets. It is important to know that gold is most often traded in US dollars (XAU/USD), which means that its value rises when the value of the dollar falls. Also, it is important to take into account the values of stocks and bonds, which are negatively correlated with the values of gold.
Because gold is such a mature and established market, many factors come into play in determining and influencing its price. Gold is a unique asset compared to assets like stocks and bonds, which is why its prices move differently.
Since its main role is to act as a hedge against risk, this means that we have to look for the factors that affect it a little differently, often from a macroeconomic perspective.
In the coming years, it is expected that institutions and people who want to at least partially protect themselves from the uncertainty surrounding the economy and world events will once again turn to gold.
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The price of gold. Analysts expect double-digit growth for 2023. Also, and above all, because they expect inflation to remain at a high level and the economy to be in deep red.
According to the predictions of many, a return to the pre-pandemic rate of lowering inflation is impossible at this moment, because we have entered a global economic war, where all major world powers will strive to strengthen their national security on all possible fronts. This applies to the military sector, supply chains, energy and especially the financial sector. These processes were triggered by the pandemic and Russia’s current invasion of Ukraine.
Considering the current situation in these sectors, we can predict the following in 2023:
- The FED's tightening policy and quantitative tightening is putting a new brake on the US government bond markets, prompting new measures to reduce the volatility of the government bond market. This is followed by quantitative easing, which helps keep inflation low and stable.
- The price of gold and inflation of paper currency are closely related, where inflation is caused by the devaluation of money. The value of gold, as the only real money, thus increases, because people prefer to keep their money in a concrete value that increases or at least maintains its value.
At a time when inflation remains high for an extended period of time, gold becomes a means of insuring the major players against loss of value. Consequently, this raises the price of gold during an inflationary period. Most importantly; newly mined gold reserves are small. Most of the gold in the offer is recycled. When global demand increases and there is not enough supply, the price of gold rises.
- The Turbulent geopolitical background and the growing mentality of the war economy lead to the need for independence and thus to the reduction of foreign exchange reserves for gold.
- Major investments in new national security priorities, including energy resources and supply chains.
- China. With the arrival of spring, the ruling party decides to deviate from its anti-Covid policy, and begins to praise an effective treatment and perhaps even a new vaccine. A renewed increase in Chinese demand is causing commodity prices to jump again, which could cause inflation to skyrocket, especially in the case of a weaker US dollar.
Image: The movement of the price of gold has a lot to do with the fact that gold is very rare.
The price of gold. If we remember the global crisis of 2008; when credit conditions tightened, gold fell by 31 percent, the crisis accelerated, and the rush of money from all kinds of assets began. It was very painful for all those who did not know that the credit crunch causes the decline of all assets. This was an excellent opportunity to buy gold at very low prices.
The current crisis, which has been going on since 2020, has forced central banks to speed up money printing, which can again represent an opportunity to buy gold.
Given that inflation can last for several years, we can see that the price of gold could move from the current price of $1,770 to the key resistance area of $2,070 in the coming years. If the public debt of the United States of America becomes an (even bigger) problem, then the price of gold could reach $3,000 per ounce.
Image: Gold price chart. Gold price forecast. 2023 golden year? Martin Korosec.
Based on a personal view of the current situation in the world, we can conclude that gold is an asset that will always be in demand, whether for use in jewelry or electronics, and in constant high demand by central banks and investors.
Always relevant to the price of gold: Gold is a precious metal whose supplies are limited. The supply of gold is regularly decreasing, which means that as demand increases, the price of gold will continue to rise.
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