Factors Driving Gold Price Higher 

Humans have been fascinated with gold since the dawn of civilisation, and ancient societies, including the Egyptians and Greeks, revered it as a symbol of power and wealth. Throughout history, emperors, kings and queens, governments, and investors have trusted gold to maintain its value. Across various cultures, gold symbolises purity, prosperity, and status. Central banks around the world hold significant gold reserves as part of their monetary policy strategies. This reserve provides financial security and serves as a tool for economic stability, influencing global gold demand. It is often used in religious artefacts, royal regalia, and significant cultural events such as weddings. It has also been a key component in many electronic products because of its excellent conductivity, malleability, and resistance to corrosion. A smartphone, for example, contains around 0.034 grams of gold on average, according to American Bullion, a major gold dealer. 

The fact that gold is a physical asset with a finite supply is what makes it even more appealing. Unlike cash, equities, and bonds, which can be printed or issued in unlimited quantities, gold must be mined and refined, ensuring its scarcity and maintaining its value over time. This means that the time will come when the world will no longer have gold left to be mined economically. The stock of gold reserves is presently estimated at around 50,000 metric tonnes, and some 190,000 metric tonnes have been mined until 2020, according to the US Geological Survey. Based on these estimates, there is about 20 per cent of the total mineable gold still to be mined. The allure of gold has also been a driving force for several emperors to conquer new lands in their pursuit of gold mines. Its value and its ability to inspire greed and desire have undoubtedly shaped mankind’s history.

 Gold rush

Gold’s position as the ultimate keeper of value has never been challenged. The word ‘gold rush’ accurately portrays the powerful pull of this precious metal. A gold rush is a period of intense migration and activity triggered by the discovery of substantial quantities of gold in a particular area. The initial trigger had been the news of the discovery of gold, which spread quickly and caught attention from far and wide. This resulted in the mass migration of people, called “gold seekers," who hoped to find gold and get rich. The influx of people and capital then led to rapid economic growth in the region. Towns and infrastructure developed quickly to cater to the needs of the new population. Examples of famous gold rushes include the California Gold Rush (1848–1855), the Australian gold rushes of the 1850s, the Klondike Gold Rush (1896–1899), and the Witwatersrand Gold Rush in South Africa (1886). Each of these events profoundly shaped the history and development of these places. 

Gold is also seen as a genuine investment opportunity, offering the potential to make a serious return. People will continue to invest in and admire this precious metal for its timeless appeal. Investors view it as a critical component of a diversified portfolio. Experts say it often moves inversely to stock markets and currencies, providing a safeguard against market downturns and currency fluctuations. In times of economic uncertainty, recession, or runaway inflation, it has risen to record highs in value. This is exactly what happened when COVID-19 upended the global economy. By mid-2020, gold had surpassed $2,000 an ounce for the first time as traders looked for safe havens amid the raging pandemic. The global increase in its price has directly impacted Nepal's gold market, setting a new record in the domestic market at Rs. 140,900 in late May. The devaluation of Nepali currency against USD has also played a role in the rise.

Geopolitical tensions

Recently, geopolitical tensions have heavily influenced the price of gold. In early 2022, when the Russia-Ukraine conflict broke out, gold prices galloped to a new high. The war prompted the Russians to buy increasing quantities of gold as a hedge against growing economic concerns, driving its price higher. On the other hand, the US and its allies, in an effort to 'cripple' the country's war machine, warned the international gold traders against buying gold from Russia, a major gold producer. More recently, economic turmoil in the world's major economies has been fueling the price to scale to new heights of over $2,400 per ounce in mid-May 2024 from $1,928 per ounce in September 2023. Today, the price is said to have fallen somewhat from that peak. 

One country is said to have played an outsize role in this latest price rise: China. Two recent events in that country have upped the price. First, the People’s Bank of China has been on a gold-buying spree, steadily increasing its gold reserves for 18 months straight as of early 2024 and boosting its demand. This hoarding is part of its broad strategy to diversify its reserve assets and reduce dependence on the US dollar. Second, the lacklustre performance of traditional investments in real estate and the stock market. As investors’ confidence has been dented by these not-so-good-performing sectors, experts say, more and more Chinese consumers are flocking to gold as a safe investment. 

There is one more major factor sending the price soaring: stubbornly high inflation. The war in Ukraine and the Israel-Hamas conflict have pushed the price of oil higher, increasing the price of virtually all commodities and unleashing inflation the world over. When currencies lose their purchasing power, the allure of gold soars higher. That's because it is seen as something that retains its value no matter what, so it works as a hedge against inflation. 

(Basyal works as a journalist at The Rising Nepal.)