Gold: What is behind the ongoing price rise?

The causal chain for gold is actually quite simple. Like palladium or platinum, the precious metal does not provide any regular income, i.e. interest. In a year when US interest rates climb to five percent on 10-year Treasury bonds, the price of gold should experience severe turbulence. From its annual high at the beginning of May at 2,050 US dollars, it fell almost as planned to around 1,800 US dollars on October 5th. With the terrorist attack by Hamas against Israel and the global political uncertainties, the old strength has now returned.

Within just two weeks, gold broke the $2,000 mark again and set a record in euro terms. “This means that the tried-and-tested crisis currency behaved in the same way as Bitcoin, which represents a kind of new gold for some investors,” says Jürgen Molnar from Robomarkets. This can also be seen in the sales of the brokers. However, it is not just the special political situation that is pushing gold. The World Gold Council’s third quarter gold demand trends report shows support continues as central bank purchases maintain their historic pace, pushing quarterly gold demand to 1,147 tonnes, eight percent above its five-year average.

Who buys gold?

It was the third strongest quarter for central banks in terms of net purchases, totaling 337 tonnes, according to World Gold Council data series. “Although the record for the third quarter of 2022 was not broken, demand from the beginning of the year to the end of October reached 800 tons, which means a new record,” said Franz-Georg Wenner from the IndexRadar stock exchange service. For 2024, the interest rate side could serve as an argument for gold again.

The gold dealer Ophirum has therefore also listed exciting data from the speculative front: Speculators have apparently gambled away. According to data from the Commodity Exchange Commission (CFTC), their positioning slipped into net-short territory at the end of September for the first time since November 2022. The bets on falling prices clearly predominated – and led to massive short coverings when gold was able to make up ground.

According to Ophirum, there have only been 54 weeks since 2013 in which speculators were positioned short and were therefore mainly betting on falling gold prices. Last year this phase lasted ten weeks. Gold then gained significantly in value because the pessimistic mood only lasted temporarily.

Credibility is crucial

Bert Flossbach from Flossbach & Storch has been making another point for gold for months: “If the central banks lose the fight against inflation because they are forced to stop their interest rate increases earlier than necessary, there is a risk of a loss of trust. The store of value function of money could then “In this case, gold as the currency of last resort would greatly appreciate compared to paper currencies, which are suffering from a decline in purchasing power,” said Flossbach. So there seem to be enough arguments for gold.

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