Why Are Investors Buying Gold as Prices Reach Record Highs?

Interest in gold investing has grown substantially over the past few years, and this year has been particularly notable for the precious metal. Since early 2024, the price of gold has been climbing, and the uptick has been nothing short of remarkable, with gold shattering multiple price records so far this year.

The first significant spike came in early March, when gold prices surged to $2,160 per troy ounce, up 8% from the previous record of $2,135 in December 2023. By April, the price of gold had broken another record, and it did so again in May and August. Gold’s price then continued its upward trajectory, landing at yet another all-time high of $2,584.09 per ounce this week (September 16).

While this price performance would be impressive for any asset class — gold’s price is up 25% since January 1 while the average stock market return is about 10% per year — it’s particularly notable for gold. After all, gold is traditionally seen as a long-term, stable investment rather than a high-growth opportunity. But why are investors putting money into gold now? That’s what we will answer below.

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Why investors are buying gold now

There are a few reasons why investors are flocking to gold right now, including:

To capitalize on future price growth

One reason investors are moving to gold currently is to capitalize on the potential for future price growth. While gold’s recent price trajectory is unusual, many analysts believe the upward trend in gold prices could persist for the near future, as there are a few factors driving it.

For starters, sustained demand from investors and institutional buyers is pushing the price higher, as gold remains a popular choice for those seeking to diversify their portfolios or protect their wealth. But beyond individual investors, central banks around the world are increasing their gold reserves and this demand is not expected to wane any time soon.

Gold’s uses are also expanding beyond traditional investment and jewelry markets. Technological advancements, particularly in electronics and renewable energy sectors, are helping to increase the demand for gold. As these industries grow, demand for gold in technological applications may rise, adding to upward pressure on its price.

The finite nature of gold also plays a key role. Gold is a limited resource, and mining output has been relatively stable in recent years. With limited new supply entering the market and continued demand growth, many investors expect prices to keep climbing. In fact, some experts believe that the price of gold could hit $3,000 per ounce soon.

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To protect against economic uncertainties

While inflation has cooled significantly compared to previous years, with the current inflation rate just slightly higher than the Fed’s 2% target rate, broader economic uncertainties continue to drive investors toward gold. The stock market has experienced some volatility recently, with downturns occurring over the last few months. And other economic factors, like a weaker-than-expected job outlook, has made other asset classes riskier in the eyes of many investors.

Ongoing geopolitical tensions have also made gold an attractive asset, as gold has historically been a safe haven during times of political instability or economic upheaval. So as these types of disruptions continue to impact global markets, gold’s role as a store of value tends to make it more appealing.

And while inflation may be slowing, the reality is that inflationary pressures could return in the future, and that is also driving renewed interest from investors. Because gold has long been viewed as an effective hedge against inflation, some investors are adding it to their portfolios as protection against future spikes in inflation.

For gold’s other benefits

Gold’s allure goes beyond its price growth and safe-haven status. Many investors turn to gold for its unique characteristics that differentiate it from other assets.

For one, gold has no counterparty risk. Unlike stocks or bonds, where the value is tied to the performance of a company or government, gold holds intrinsic value. Investors own a tangible asset, whether in the form of gold bullion, gold coins or ETFs tied to physical gold. This makes gold appealing in times when trust in financial institutions may be waning.

Another key benefit is liquidity. Gold is one of the most liquid assets in the world, meaning it can be easily bought and sold with minimal transaction costs. This is particularly attractive during market downturns when other assets may be harder to offload quickly.

Gold’s universal appeal also makes it a globally accepted asset. It’s not tied to any one country or economy. This makes it particularly valuable in a world where economic changes can occur quickly from region to region.

The bottom line

This year’s surge in gold prices has been remarkable, with new record highs reached every few months so far. And while some may view gold as a traditional, long-term investment, many investors are buying in now to capitalize on potential future price growth and safeguard their portfolios against economic uncertainties. It’s a strategy that could pay off, as the sustained demand, new technological uses, and finite nature have made it a compelling choice for those looking to diversify their investments and grow their wealth.