Why the price of gold is rallying

Gold is an enduring asset, and one that has been valuable for many years. Right now, the precious metal is soaring in value, with record prices being recorded and traders rapidly making their moves.

But what is happening right now to move its value upwards? And where do we go from here? Whether you’re a trader trying to make predictions for the coming months or plotting out gold prices for the next five years, it’s worth taking the time to understand the factors in play that have led to this current situation.

What makes gold different?

Gold is one of the major commodities that are traded on the financial markets. While it shares many similarities with other commodities that are traded, gold differs because it’s also been used as a form of financial protection.

Should an economy collapse, the metal can be exchanged as a form of currency. However, as gold is classed a commodity in the world of trading, it has a dual identity as it has both a commodity profile and monetary status.

Gold and the US dollar

As gold is currently a form of currency, it’s worth noting that it’s usually mentioned in relation to the US dollar. This is because it’s priced in US dollars.

The two currencies have an inverse relationship. This means that if the dollar falls, gold prices rise and if the dollar rallies, gold falls in value.

It could be easy to put the current status of gold prices down to a weaker dollar. However, there’s more to it. Here are some of the maim reasons why we’re seeing the prices we are for the metal:

• Weakness in the US dollar

While it’s not just a weaker US dollar that’s causing the upward price trend, this is a significant contributing factor. The dollar recently experienced its first monthly gain since September 2022. But analysts don’t expect this to be a sign of an uptick for the currency and gold, meanwhile, is experiencing an upward trajectory.

• Weak US economic data

Factory orders were low, and the US labour market also cooled off earlier in the year. This indicates a slowing economy for the country, further impacting on prices of the commodity.

• US Fed interest rates

The Fed had paused raising interest rates. However, there are reports that the US central bank will adds further hikes.

• Economic uncertainty

Economies around the world have experienced an economic downturn in the last year and there remains uncertainty around how this will play out in the coming months. Some countries, such as the UK, have narrowly avoided recession recently, and it’s this trepidation around what’s down the line that’s having an impact on gold prices as people seek to invest.