The gold market is booming as investors seek safe shelters for investment amidst global economic uncertainty.
Gold prices rose nearly a third in the past year, reaching an all-time high, exceeding $3,550 per ounce on Wednesday.
Some analysts hope prices will continue to rise amid a turbulent geopolitical environment.
Why is gold so popular now?
Gold has long been a favorite of investors during periods of uncertainty or rapid upheaval, according to Tim Waterer, chief market analyst at Australia’s KCM Trade. Its value is considered relatively stable, especially compared to stocks.
“One of the things financial markets hate is uncertainty, and in such a scenario, gold is usually a go-to asset for traders,” Water told Al Jazeera.
Gold has historically produced only modest returns, but its prices have risen sharply over the past two years amidst a turbulent international environment plagued by the wars of Ukraine, Gaza and the President of the United States in the Donald Trump war.
Gold is also popular with investors who feel distrustful of governments and financial institutions, as it is a product that can be physically owned and stored.
How do investors buy money?
There are two main ways to trade gold.
The first is to buy bullion in the form of bars, ingots, jewelry, or coins.
The second option is to trade financial instruments.
Investors buy and sell gold futures (contracts that buy and sell gold at a certain price) and exchange sales funds that track the price of gold.
Bulk may be easy for individuals to purchase, but financial products offer the institution the advantage that they do not need to physically process or store large quantities of metal.
Gold is usually derived from the US dollar, and its value has an inverse relationship to currency.
If the dollar falls, gold prices usually rise and vice versa.
How is Trump raising the price of gold?
The price of gold skyrocketed in April when Trump announced his “liberation day” tariffs in much of the world, causing a period of great uncertainty about the future of global trade.
Trump’s ongoing attack on the independence of the US Federal Reserve, which has long been considered the above-mentioned politics, has been helping to raise prices recently.
Trump repeatedly pressured the central bank to cut interest rates to stimulate economic growth, expressing his wish that the value of the dollar would fall, and to export us.
Kyle Rodda, senior financial market analyst at Capital.com, said that both scenarios are more attractive to investors.
“If interest rates rise, gold can get more for money by parking in an interest-bearing property, like a bank account, which reduces the appeal of gold,” Rodda told Al Jazeera.
“But if interest rates drop, I get less interest paid to me, making my money relatively attractive.”
The same applies to other interest-bearing assets such as bonds.
Foreign investors trading in currencies other than the dollar may be aiming to buy more gold as US currencies fall.
What’s going on outside the US?
Financial anxiety elsewhere also strengthened the gold case.
British Sterling and Japanese yen have recently been hampered amid concerns over worsening UK and Japan’s finances.
Yen is also suffering from instability in the Japanese governing party.
“When a currency is losing its value, gold is considered a good asset to protect against inflation risk. Unlike currencies, gold supply is essentially more finite and therefore does not tend to dilute prices. This applies to other countries, such as Turkey and Egypt,” Water said.
Gold is also an increasingly popular option for foreign governments who need to store large quantities of US dollars generated from trade, but who have less confidence in government bonds under Trump.
“In general, the country uses these dollars to buy the Treasury Department, park your money safely and earn interest on top of it,” Rodda said.
“President Trump’s trade policy has reduced the confidence to hold US assets, particularly among his strategic opponents. As a result, countries with many dollars are instead pushing up gold prices and buying gold in exchange for buying gold.”
