Gold prices rose to a record high of $2,135

The previous high of $2,075 from the summer of 2020 was clearly exceeded. In the morning, however, the price fell slightly again and was last quoted at $2,065. That was about six dollars less than Friday.

The price of the precious metal has long been driven by the prospect that the interest rate peak has probably been reached in the USA, but also in the euro area. Recently, hopes had even increased that the US Federal Reserve and the European Central Bank (ECB) could cut interest rates as early as spring. However, experts sometimes consider such expectations to be exaggerated given the still elevated inflation.

Nevertheless, gold is becoming more interesting for investors with the expectation of falling key interest rates. Because the precious metal comes with a penalty: unlike fixed-interest securities, gold does not generate any ongoing income. If interest rate expectations fall, the disadvantage of a lack of interest income becomes smaller – and gold becomes more attractive from an investment perspective. Especially since the prospect of falling central bank interest rates is already having an impact on the markets – and capital market interest rates are already falling.

Falling dollar exchange rate as a driver

The demand for gold is also driven by a second factor: the falling exchange rate of the dollar. Gold is traded internationally primarily in US currency. However, if the dollar exchange rate falls, purchasing gold becomes mathematically cheaper for those interested outside the dollar area. The demand for the precious metal is often fueled by this exchange rate effect, which also causes the price of gold to rise.

Analysts at the German Dekabank cite inflows into safe investment havens as the third reason for the rise in gold prices. Gold is traditionally considered as protection against inflation and crises because it is considered to have a high and comparatively stable intrinsic value. The many international crises provide plenty of reasons for high demand for safe investments. These include, first and foremost, the wars in Ukraine and the Middle East, the increasing formation of political blocs in the world and the fundamentally weak economic development in many countries.

Will the hunt for records continue?

Experts also cite the high demand for gold from central banks as a driving factor for the gold price. Latest data showed that the Chinese central bank alone increased its gold holdings by almost 250 tons this year, according to Dekabank. According to the interest organization World Gold Council, purchases by central banks have amounted to 800 tons so far this year. That is 14 percent more than in the same period last year.

What’s next for gold, will the hunt for records continue? “If the signs of low interest rates become more pronounced, gold should continue to grow in the coming year,” says Alexander Zumpfe from the precious metals trader Heraeus. However, the price will not move upwards in a one-way street. After the recent rally, there are signs that the market is overheating. But that doesn’t change the fact that the mood for gold is positive. “The signs point to lower key interest rates.”