Why Gold Prices Keep Reaching All-Time Highs: An Analysis

Gold climbed to another record high on Wednesday as investors continued to pile into the traditional safe haven, spurred by the start of the Federal Reserve’s rate-cutting cycle as well as economic and geopolitical uncertainty. 

Gold futures contracts rose as much as 0.6% on Wednesday morning, nearly topping $2,700 an ounce for the first time, before paring their gains to trade flat. 

Gold prices have surged this year, putting the yellow metal’s year-to-date return (29%) comfortably ahead of the S&P 500’s (20%).

That outperformance has surprised most experts. “The rally has come earlier and has been much sharper than expected,” said JPMorgan precious metals strategist Gregory Shearer of gold prices this year. And that was in July, before prices had crossed $2,500, let alone $2,700.

What’s Behind Gold’s Surge This Year?

Gold’s blistering rally has been driven by several convening factors. 

First, central banks have been loading up on gold all year, extending a buying spree that started in 2022. Central banks purchased 483 tonnes of gold in the first half of the year, the most on record in data going back to 2000.

The People’s Bank of China alone added 316 tonnes of gold to its reserves between November 2022 and April 2024. It’s since paused its gold purchases after a sharp rise in prices, but the expense hasn’t completely dissuaded other countries. Central banks, led by Poland, Uzbekistan, and India, added 37 tonnes to their reserves in July, the most since January (45 tonnes).

Their motives, according to a survey by the World Gold Council, are varied. Most said they sought gold as a hedge against inflation or economic crises, while a large share noted they liked it for its lack of default risk. But none said that their stockpiling was primarily motivated by what experts have argued is a highly consequential factor: efforts to reduce their reliance on the U.S. dollar.

Gold purchases jumped to a record 459 tonnes in the third quarter of 2022, shortly after the U.S. froze Russian dollar-denominated assets and cut the country out of the SWIFT global payments system.

Fear of sanctions isn’t the reason central banks are attempting to de-dollarize their reserves. Global central banks are also wary of the ballooning national debt and the challenges of servicing it—the U.S. is expected to pay $1.2 trillion in interest this year. The fear is that one day the U.S. won’t be able to pay its debts, ravaging the value of the dollar and Treasurys.

Why Retail Investors are Buying

Institutional and retail investors have also recently jumped in amid falling interest rates and heightened economic and geopolitical uncertainty.

U.S. gold ETFs recorded inflows of $1.2 billion in August, their second consecutive month of gains, as the Fed made clear its intentions to begin cutting interest rates in September. Since gold, which pays no yield, competes for investor dollars with debt, which does pay a yield, gold prices are conventionally boosted by lower interest rates.

August’s spike in market volatility also directed investors toward gold, which outperforms stocks in times of economic uncertainty because of the widely held belief it’s a reliable store of value. Geopolitics, including the wars in the Middle East and Ukraine, and November’s U.S. presidential election have also ratcheted up fear in financial markets, nudging investors toward gold as a safe haven.