Considering the historical rise in gold prices levels since the beginning of March 2024, as its value rose by an estimated 7% over a period not exceeding 30 days, at a price of $2,179 per ounce, Questions are increasing as to whether the demand for hedging with gold is a safe haven in the face of economic crises.
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Economists believe that the current geopolitical risks, with the continuation of the Russian war on Ukraine and the ongoing war in the Middle East, and the expected reduction in interest rates on the dollar in the United States, all of them have affected gold prices, which have reached historically highest levels in years.
The Precious Yellow Metal is a Safe Haven For the Future?
Some experts believe that for investors in countries that witness high inflation rates and where the national currency is largely declining, gold is the real investment and then it turns into a safe haven in this case… As for advanced economies that have a stable currency, there are other investment tools that provide a better return than gold in the medium and long term.
Citizens of many countries hit by economic inflation usually resort to hedging with gold, instead of paper currencies, for fear of their money losing its value. This explains the rise in gold prices, and how gold has become an essential commodity in the lives of many Arab families.
Gold and the US Federal Reserve… an Inverse Relationship with Economic Consequences
Speaking to the BBC, economic expert Amer Al-Shoubaki says:
Expectations that the US Federal Reserve will reduce interest rates have had the greatest impact on the price of gold, as the relationship between them is historically inverse… When interest rates are raised, the value of the US currency rises, and this negatively affects gold prices, causing them to fall, and vice versa.
Al-Shoubaki explains, “What we see now is the US Federal Reserve’s intention to begin reducing interest rates during the next few months, with the recent weak economic data in the United States, indicating a decline in the value of the dollar, and then a rise in the value of gold.”
However, the end of last year witnessed a clear consolidation of gold at high levels despite the rise in interest rates. Due to the rise in global inflation indicators and the rush of many world economies and major central banks to hedge with gold in the last quarter of 2022 and the first quarter of 2023.
Will Gold Prices Continue to Rise?
All economic indicators are heading towards a certain rise in gold prices in futures contracts, and in the near future, and it is mainly related to the possibility of cuts in interest rates by the US Federal Reserve, and if these three expected cuts occur, this will certainly raise gold prices to around $2,300 per ounce, according to Al-Shobaki’s statements to the BBC.
Pointing out that there are those who expect greater gains for the price of gold, reaching $3,000 per ounce, if central banks around the world decide to replace their dollar reserves with additional gold reserves to a large extent.
Source: BBC
