If this year’s rally in the gold price shows anything, it is that the precious metal is no longer inextricably tied to the interest rate cycle. But that does not mean lower rates will have no impact: talk last week at the Jackson Hole symposium in Wyoming of coming cuts will give gold some extra shine.
Traditionally, gold is seen as a better investment when rates are low and when other asset classes are not up to much. By this token, it should have had a dim start to 2024 given the unexpectedly strong performance of US equities, the resilience of the economy, and a delay to expected Federal Reserve rate cuts. Yet it has risen 22 per cent this year, outperforming the S&P 500, and has recently crossed $2,500 a troy ounce.
Clearly, there were some buyers out there whose main concern was not the opportunity cost of holding gold. Enter central banks, which in the first half of the year bought 483 tonnes of the precious metal, says the World Gold Council. That is the highest amount since the body started collecting data. It is hard not to attribute some of this colossal buying spree to the Russia- Ukraine crisis, and in particular to the freezing of Russian central bank assets that occurred in 2022. That, predictably, sparked a desire in large emerging economies to shift away from the dollar.