In recent years, the price of gold has been growing steadily. From 2020 to today, it has gone from $1,585 per ounce to just over $4,000. People and banks prefer to invest their funds in the precious metal to protect them from inflation. And increased demand naturally affects the price.
Economists at Deutsche Bank have found that central banks around the world are intensively buying gold - these are financial institutions from China, Russia, India, Turkey, as well as from rapidly developing countries. Therefore, by 2031, gold could reach a price of $8,000 per ounce - i.e. twice as much as now.
The new player: cryptocurrencies
Before looking ahead, however, it is necessary to analyze how the current situation came about in the first place, or how the gold rush of recent years began. Financial expert Frank Shallenberger points out the reasons to the DW: "Fears of falling interest rates and the weak US dollar, intensive purchases by issuing banks, as well as high demand for coins and bars".
Shallenberger points out that there is currently a relatively new player on the market: cryptocurrencies. They are becoming "an increasingly important group of customers, as they also diversify their assets, including through purchases of gold. If the rise of these currencies continues, this could lead to an even greater increase in the price of gold.
Michael Hsu, an analyst at Deutsche Bank, divides clients into "elastic" and "inelastic" and believes that the latter, such as issuing banks, are crowding out the former - private individuals, such as jewelry buyers. It is precisely stable demand that is "the key factor for the high price of gold in the period from 2021 to 2025," he is convinced.
Financial analyst at DZ Bank Thomas Kulp, in turn, pointed out to DW that in recent years gold has been rising in price mainly due to the accumulation of geopolitical uncertainties. "The safe haven aspect of gold, on the one hand, and its status as a guarantor of independence, on the other, are the most important drivers of demand."
Is the safe haven still safe?
Gold has long been considered a reliable way to guarantee the security of money. It cannot be multiplied and is subject to speculation, but in any case it is safer than hiding money under the mattress. But is gold still a safe haven today?
No, says Frank Shallenberger. The idea is not good on a large scale, but it should not be ignored as a guarantee. “A five or ten percent share in the portfolio is definitely not a bad idea, because it can reduce its volatility (fluctuations in price levels - ed.).
Michael Hsu of Deutsche Bank does not share this opinion - according to him, banks buy gold on a large scale precisely as a way to preserve value. "The main reasons why central banks include gold in their portfolios are diversification, protection against geopolitical risks and protection against inflation", he points out.
Thomas Kulp's opinion is: "Gold is and will remain the ultimate safe haven. The yellow precious metal is most sought after in uncertain phases or in times of crisis". But this is not always true, as "the price can at times experience serious fluctuations and investors should always keep this in mind".
A look into the crystal ball
Making predictions is always associated with a certain risk, including when it comes to economic developments. Regarding the price of gold, Frank Shallenberger says that at the moment he does not see such strong impulses that would lead to its doubling in the next five years from the current, already relatively high level.
Michael Hsu expects a recovery in the gold reserves of central banks with increasing geopolitical uncertainty, as during the Cold War.
The new uncertain times have led to a return to the lower limit of the range from the period before 1990, i.e. to a share of gold of 40 percent in the reserves of central banks. “If the foreign exchange reserves of developing economies fall from eight to five trillion dollars, this could correspond to a nominal gold price of 8,000 euros per ounce."
DZ Bank analyst Thomas Kulp is more reserved, but does not hide the fact that he sees no dark clouds on the horizon. “The main factors determining demand remain unchanged. That is why our long-term forecast for the price of gold is positive."
Author: Dirk Kaufmann