After reaching $4,380 an ounce on October 20, then falling by more than 10% before recovering some of its losses, the price of the metal has risen by about 55% since the beginning of the year, and 47% above its highest historical level in the eighties, with expectations that it will reach $5,000 by 2026.
The newspaper presents three possible explanations for this bullish wave: the role of financial institutions, increased purchases by central banks, and the activity of speculators. However, the newspaper believes that the data does not strongly support the interpretations of institutions and banks, as the economy is not experiencing a recession, returns are rising, and US stocks are rising, which makes this rise different from previous waves that were associated with clear crises.
As for the interpretation of “getting rid of dollar assets,” the newspaper considers it weak, noting that the dollar has remained stable, and that long-term bond yields have not witnessed significant changes, which indicates that the rise in the share of gold in reserves is a result of the price increase and not a result of exceptional purchases.
In contrast, The Economist believes that speculators are the main driver of the current rush, noting that hedge funds recorded record buying positions of 200,000 contracts, coinciding with a noticeable movement in index funds. It believes that the recent sales of about 100 tons explain part of the previous decline, while it confirms that the return of flows links this movement to “hot money”.
The newspaper concludes by saying that what began as a limited move to increase the share of gold in reserves has turned into a large rush driven by momentum and speculation, warning that this pattern usually stops suddenly and doubles the losses of those who bet on its continuation.
(The Economist)
