Recently, there have been more and more frequent forecasts that the price of gold could reach new record levels.
Some analysts even believe that the value of this precious metal could double in the next five years. But how realistic is such a scenario?
The price of gold has seen strong growth in recent years. With short-term declines, the trend was mostly up. As of 2020, the value of gold has risen from around US$1,585 per ounce to more than US$4,500.
In ideal circumstances, money should not lose value due to inflation, but should bring additional earnings through interest. However, with the current relatively low interest rates, many investors are looking for safer ways to preserve their assets. As before in crisis periods, attention is again directed towards precious metals, and higher demand further raises the price.
Deutsche Bank analysts report that central banks around the world are increasingly buying gold. China, Russia, India and Turkey, as well as other developing countries, are increasing their gold reserves. Because of this, gold could reach a price of as much as 8,000 dollars per ounce by 2031, which would mean almost doubling the current value, according to German experts.
A new factor in the market: cryptocurrencies
To understand today’s rise in the price of gold, it is necessary to look at what led to the current situation.
Frank Schallenberger from Landesbank Baden-Württemberg cites several key reasons: expectations of interest rate cuts, weakening of the US dollar, strong gold purchases by central banks, but also increased demand for gold coins and bullion, reports SEEbiz.
Along with traditional customers, a new factor appeared – cryptocurrencies. They are increasingly being developed as an additional investment category and part of an asset diversification strategy, which can indirectly further increase interest in gold.
Michael Hsueh, an analyst at Deutsche Bank Research, points out the difference between stable and variable demand. Central banks represent stable buyers who increase their reserves in the long term, while private buyers, such as jewelry buyers, change their decisions more easily depending on prices.
Thomas Kulp from DZ BANK believes that the biggest drivers of gold price growth in recent years have been geopolitical uncertainties. Gold regained the status of “safe harbor” in times of crises and global risks.
Is gold still a safe investment?
Gold is traditionally considered a way of preserving value. Unlike money, its quantity is limited, but its price can still fluctuate significantly.
Frank Schallenberger believes that investing a large part of your assets in gold is not the best strategy, but that a certain proportion can be useful.
“Investing five to ten percent of the portfolio in gold is not a bad idea because it can reduce fluctuations in the value of the investment,” he believes.
Michael Hsueh believes that central banks use gold as a hedge against inflation, geopolitical risks and as a way to diversify reserves.
Thomas Kulp also believes that gold remains an important safe-haven asset, but warns that its price can undergo large swings and that investors need to take this into account.
Forecasts are not always reliable
Every forecast carries a certain risk, including the one related to the price of gold. If economic forecasts were always accurate, there would be many more wealthy investors.
Frank Schallenberger does not believe that the price of gold will double in value in the next five years.
According to him, the growth so far was the result of large purchases by central banks and investments in gold funds, but these factors are currently losing strength.
On the other hand, Michael Hsueh stands by Deutsche Bank’s assessment that the increase in gold reserves of developing countries could push the price towards $8,000 per ounce in the long term.
DZ BANK analyst Thomas Kulp is more moderate. He expects the price of gold could reach $5,000 an ounce in the next 12 months as key factors supporting demand remain.
