Explainer: Why are prices of gold at all-time high?

Explainer: Why are prices of gold at all-time high?


Gold prices are high because of possible cuts in interest rates. — Reuters/File

Gold price in the international market — which is currently trading at $2,364 per ounce — has been making and breaking records for the last seven sessions due to several positive factors that have given investors a new ray of hope.

On a year-on-year basis, the price of gold is 16.5% high, as the investors are expecting the cut in interest rate by the Federal Reserve — leading to high demand.

However, the major cause behind the spike in demand is China because it is aiming to move away from the US dollar.

The yellow metal is regarded as a safe investment for central banks that can hold the financial back during times of economic turbulence.

When interest rates are reduced, the gold demand tends to rise because it becomes more appealing to investors than other assets that generate income such as bonds. 

It is also called a crucial investment to beat inflation as its worth does not decrease.

Inflation is also among factors driving demand for gold. — Reuters/File
Inflation is also among factors driving demand for gold. — Reuters/File

Reuters reported that the People’s Bank of China bought gold for the 17th straight month in March, and added 160,000 ounces that took its reserves to 72.74 million troy ounces of gold.

An April 9 Capital Economics research note stated that investors in China are buying gold as the value of other assets such as real estate has downed in recent years.

Countries such as India and Turkey are also beefing up their gold reserves.

The heavy buying of gold is reducing countries’ dependence on dollars — one of the major currencies in the world and the crucial means to international trade.

This would also circumvent the vulnerability to economic sanctions, a JPMorgan research note stated, quoted by CNN.

Experts believed that the oil price surge also drives inflation, motivating people more to invest in gold — another factor driving the demand.



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