Gold: Gold's Price Less Influenced by Crises than Central Bank Policy, Says Expert
As a popular safe haven during times of crisis, such as those in Ukraine and Israel, you might think the price of gold is heavily influenced by these global events. However, according to industry expert York Tetzlaff, Managing Director of the German Federation of Precious Metals and Jewelry (Fachvereinigung Edelmetalle), that's not the whole story.
While wars and crises can cause a temporary surge in gold demand, Tetzlaff contends that in the long term, other factors drive the price of gold. These factors include demand for gold in jewelry and industrial sectors, investment demand, and exchange rate and interest rate developments.
"In the long term, it's not crises or wars that determine gold prices, but rather these other factors," Tetzlaff explained to the Deutsche Presse-Agentur in an interview.
Central Banks and Interest Rates
One of the factors that Tetzlaff believes has a significant impact on gold prices is central bank policy—specifically, interest rate policies. If the US Federal Reserve cuts interest rates in the coming year, as some analysts predict, Tetzlaff believes this would drive up the price of gold.
"Interest rate cuts make interest-free investments more attractive," Tetzlaff said, "and also weaken the value of the dollar, in which gold is traded. Therefore, investors should also consider the currency risk associated with buying gold."
States of Demand and Supply
Demand for gold in the jewelry and industrial sectors is another important driver of gold prices, Tetzlaff noted.
For example, strong demand for jewelry in countries like India has helped keep gold prices high, and there is also demand from investors looking for a way to reduce the overall risk in their investment portfolios.
"Gold is a rare commodity, and as such, it has served as a reliable store of value for centuries," Tetzlaff said. "In times of geopolitical instability, gold has proven to be a valuable tool for diversifying investments and reducing risk."
Precious Metals and Sustainable Industries
In addition to jewelry and investment demand, gold is also in high demand for use in industry. For example, gold is used in the manufacture of printed circuit boards and catalytic converters, and demand for these products is growing.
"The development of global automotive production and increasing environmental regulations could have a major impact on the value of these precious metals in the future," Tetzlaff noted. "In addition, palladium plays a key role in the promising hydrogen storage industry."
Recycling and Supply
Sustainability and recycling are also important factors in the gold market, Tetzlaff said. For instance, the German precious metals industry is a world leader in gold recycling, with almost all of the gold produced in Germany coming from the recycling of old gold or electronic scrap.
"One tonne of discarded smartphones contains 250 grams of fine gold," Tetzlaff explained. "Refineries remove impurities or foreign metals from the old gold, and the process is much less energy-intensive than gold extraction in mines."
In conclusion, while gold may be seen as a safe haven during times of crisis, its price is actually driven by a complex interplay of factors, including interest rates, central bank policy, demand in the jewelry and industrial sectors, investment demand, and the value of the US dollar. Understanding these factors can help investors make informed decisions about gold investing.
Enrichment Insights:
- Central banks and their interest rate policies have a significant impact on the price of gold.
- Interest rate cuts make interest-free investments more attractive and weaken the value of the dollar.
- In times of geopolitical instability, gold has proven to be a valuable tool for diversifying investments and reducing risk.
- Demand for gold in the jewelry and industrial sectors is also an important driver of gold prices.
- Gold is a scarce commodity, and its use in sustainable industries like hydrogen storage may further drive up demand and prices.
- Sustainability and recycling are important factors in the gold market, with the German precious metals industry being a world leader in gold recycling.
