The current rise in gold prices can be attributed to the shaky public finances of the United States as global investors question the creditworthiness of the issuer of US dollars, the global reserve currency. Both US parties have not shown any willingness to address the increasing national debt, resulting in a debt-to-GDP ratio of 122 percent. This situation is expected to worsen in the next recession, leading to inflation and negative “real rates,” which favor hard assets like gold in the long term according to John Hardy, Head of FX Strategy at Saxo Bank.
Despite a slight easing, gold prices are still high, with spot gold hitting a record high of $2,531.60 on Tuesday. The pause in gold prices is attributed to some profit-taking by short-term futures traders awaiting cues from the US Federal Reserve’s latest policy meeting. Analysts predict that gold prices could reach highs of $2,550 per ounce later this year, with the most traded gold bullion ETF, the SPDR Gold Shares, also hitting all-time highs this week.
The rising gold price is correlated with various factors, including the US election outcomes. Market activity around significant events like the assassination attempt on Trump saw a surge in cryptocurrencies and small-cap, financial stocks, indicating a reaction to political uncertainty. The market has reacted positively to Trump’s deregulation policies and corporate tax cuts, with certain sectors benefiting from his election in 2016.
Overall, the gold price is expected to remain high due to uncertainties in the global economy and the US public finances. Gold is seen as a safe-haven asset in times of economic turmoil, and investors continue to flock to the precious metal as a store of value. While market developments are influenced by a variety of factors, including US election outcomes, gold remains a popular investment choice for those looking to hedge against inflation and economic instability. As global economic conditions continue to fluctuate, the demand for gold is likely to remain strong, supporting higher prices in the future.
