Gold hits new highs and may not be done yet

Sure, it’s easy to poke fun at cheesy cash-for-gold infomercials, but maybe the Russell Olivers of the world knew something we didn’t about where gold prices were heading.

What happened: The price of gold reached a new all-time high of US$2,185 per ounce on Friday, part of a rally that’s seen gold’s value jump 30% since the end of 2022. 

  • When you adjust for inflation, however, gold actually peaked back in the 1980s at around US$3,355 per ounce (in today’s dollars).

  • That surge was driven by high inflation, the revolution in Iran, and the Soviet invasion of Afghanistan.

Why it’s happening: People tend to buy gold when they’re worried — usually about inflation, or global instability and war — because it typically retains its value even if stocks or currencies lose theirs.

  • There is plenty of conflict in the world to be concerned about, but the recent jump in gold prices is likely attributable to something less dark: Federal Reserve chair Jerome Powell’s remarks last week that the central bank was “not far from” cutting interest rates.

  • Higher interest rates increase the yield returned by other assets like government bonds, making them more appealing relative to gold — when rates fall, gold regains its lustre.

What’s next: Forecasters at J.P. Morgan think gold has more room to run. They predict it will rise to US$2,300 per ounce by the latter half of next year.—TS