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The impressive pace of the yellow metal continued over the next few years, mainly due to the economic uncertainty caused by the COVID-19 pandemic. Gold broke through the US$2,000 price level for the first time in mid-2020. Gold then reached US$2,074.60, its highest price at the time of this writing, on March 8, 2022, as Russia’s invasion of Ukraine kicked off in the middle of 2020. skyrocketing inflation around the world, increasing the appeal of safe havens.

Since then, interest rate hikes intended to combat runaway inflation have pushed gold prices to their lowest level in 2.5 years, just above the US$1,600 per ounce level. Now market watchers are wondering when gold will go up?

Predicting the outlook for gold is difficult, but there are definitely factors to keep in mind. Read on to get an idea of ​​what drives the price of gold, from supply and demand to economics and manipulation.

Investing in gold: supply and demand

Gold mine production remained virtually flat for several years until 2019, a year that marked a decline. The COVID-19 pandemic has led to further reductions in 2020 as gold miners have had to scale back their operations. But the story could be different in 2021 – according to UK-based analytics firm GlobalData, total gold mine output rebounded more than 5.5% to 115.8 million ounces in 2021 and this figure is expected to continue growing at a CAGR of 3% by 2026. .

Most gold is produced in China, with Australia and Russia being the world’s second and third largest producers. The three countries produced 370 metric tons (MT), 330 metric tons, and 300 metric tons of yellow metal respectively in 2021. China and India hold significant physical purchasing power of gold, and the title of largest consumer of gold in the world is often a draw. between the two.

In terms of consumption in 2021, gold demand increased by 10% year-on-year to a total of 4,021 MT – with the market “recovering much of the COVID-related losses incurred in 2020”, reported the World Gold Council (WGC). However, exchange-traded funds saw outflows of 173 MT for a 5% decline in total holdings.

On the other hand, demand for gold jewelry marked a significant turnaround in 2021, jumping 67%. As for gold bars and gold coins, demand increased by 31% compared to the previous year.

It should be noted that central banks have been net buyers of gold for over a decade now. In 2020, their purchases fell nearly 60% year-over-year, although the fourth quarter brought net purchases back. In 2021, central bank purchases increased by 82% year-on-year, which “pushed global gold reserves to just under 35,600 t, their highest level in almost 30 years”, according to the WGC.

Turning to supply and demand in terms of gold mining stocks, investors should be aware that most of the pure gold ever mined still exists and is accessible – for example, in the form of jewelry or bullion. gold. In contrast, many other metals exit the market when used.

This means that gold mining companies and the gold space as a whole are also affected by save and sell tactics, not just simple supply and demand.

Investing in gold: economics and manipulation

Although supply and demand are key factors in the gold market, it is important for investors looking to buy and sell to know that they are not the only factors that can impact the metal.

In particular, the global economy can have a huge influence on gold. Simply put, gold earns no interest and therefore tends to fare better when interest rates are lower; conversely, when interest rates are higher, it becomes less desirable to buy.

Interestingly, this relationship has been less visible in recent years. Four years ago, 2018 turned out to be a year when interest rate hikes actually supported the price of gold, and when the US Federal Reserve made the decision to halt rate hikes of interest for 2019, the price of gold has risen.

Investing in gold is also often favored by investors as a safe haven or hedge against inflation during times of economic downturn and political unrest. There are countless cases of people investing in the precious metals market and using gold as a hedge in times of uncertainty – for example, gold and gold stocks tend to rise whenever the trade war between the United States and China is intensifying.

However, rising interest rates make gold less attractive as a safe-haven asset, as US dollar and Treasury yields tend to rise along with interest rates. After the Fed raised interest rates another 75 basis points at its scheduled meeting in September 2022, gold lost further ground and continued to decline through the end of the month.

“There are going to be some bounces in gold, but I still believe we’re probably heading towards that $1,500 US area,” Nick Santiago, CEO and chief market strategist at InTheMoneyStocks.com, told Investing News Network. “If we go above $1,500, we will move to $1,450. But up to $1,500, I will be a big precious metal buyer.”

Price manipulation is also a concern in the gold space, and some market watchers see it as a major source of repression. Fortunately, this problem is one that global players in the gold market want to solve. Indeed, in early 2015, the long-standing London gold fix was replaced by the LBMA gold price in an effort to increase gold price transparency. Although the process still involves a variety of banks collaborating to set the price of gold, the system is now electronic.

Investing in gold: the future

The current global inflationary crisis may be eroding the all-time highs that gold has reached over the past two years, but interest in buying and selling the metal remains strong around the world. . Many economists believe that rising interest rates will most likely lead to a recession and an interest rate cut by the Fed. If that ends up being the case, the gold market could once again see gold break above the significant US$2,000 level.

Those who enjoy investing in gold would do well to remember that, like most markets, the gold industry is cyclical, which means there is volatility. Investing News Network’s 2022 Gold Price Outlook includes a more detailed view of the future of gold and gold investing. You can also view our latest quarterly gold update by clicking here.

This is an updated version of an article originally published by Investing News Network in 2015.

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Securities Disclosure: I, Melissa Pistilli, have no direct investment interests in any of the companies mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or completeness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the views of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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