Soaring gold prices have sent the cost of a single bar to a colossal new milestone: $1 million. The price of gold is currently at record levels, with spot gold prices having eclipsed the $2,500 per troy ounce mark on Friday. Gold’s recent appreciation has driven the price of an average gold bar, which weighs around 400 ounces, to $1 million for the first time.
Over the past six months, spot gold prices have shot up by nearly 25%, significantly overperforming the S&P 500 which is up almost 13% over the same period. So, why are gold prices rising?
Firstly, the recent bout of inflation in the US and other regions of the world has pushed investors in search of long-term, reliable stores of value – gold being the ideal hedge against inflation. Despite inflation largely subsiding, it created a strong wave of demand that continues to ride high. Furthermore, holding cash has become an increasingly unappealing prospect; the US Dollar has lost almost 90% of its purchasing power in the past 50 years and 80% of dollars in circulation have been printed in the last 10 years.
Secondly, central banks have also been buying gold. Data from the World Gold Council shows that demand for gold by central banks has risen by 6% in the past year and that central banks have cumulatively bought 483 tonnes. They have done this as a hedge against economic uncertainty and to diversify reserves away from the US Dollar. Moreover, there has been significant demand from emerging economies, particularly Russia, China and India which have been very active in increasing their gold reserves to boost their financial security and reduce dependence on Western-dominated financial systems.
Further, concerns about national debt, interest-rate moves and the upcoming election paired with the conflicts in Ukraine and the Middle East have loomed over the stock market. This is yet another factor making gold the hottest commodity on the market.
Written by Rakan Pharaon
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