Nicolae-Daniel Voloscsuk, Tavex Romania: "There are all the necessary factors for the price of gold to increase in the coming months"

There are all the necessary factors for the price of gold to increase in the coming months, Nicolae-Daniel Voloscsuk, economist at Tavex Romania, said yesterday during a press conference.

The economist said: "The price of gold currently has a totally unusual behavior. The growth of gold, put in context with the evolution of stocks and interest rates, is not necessarily logical from an economic point of view, something that has been observed in the last one to two years. From the third quarter of 2022, both the S&P 500 and the price of gold tend to move in the same direction, which normally does not happen, because gold is seen as a safe haven asset when the stock market underperforms - mostly in times of crisis, recession. Since 1971, the price of gold has risen during six out of seven major global crises. On average, the price of gold in six of these seven crises rose by 19%, and the stock market, through the S&P 500, fell by 40%. Gold is a safe haven asset in times of stress. Since the beginning of the year until today, the S&P 500 has increased by about 18%, while the price of gold by 28%".

Nicolae-Daniel Voloscsuk added: "Normally, the price of gold is inversely correlated with interest rates, because when interest rates are high or rising, and the real interest rate, i.e. the difference between the Federal Reserve interest rate and the US inflation rate is positive or even rising, it is much more beneficial for investors to hold their wealth in US government bonds, which are considered the safest assets in the world's financial markets. However, since the third quarter of last year, we see a direct correlation between the gold price and the ten-year US bond yield. A kind of rule of thumb is that the gold price hike should only come after the interest rate cut, so that the real rate goes down and investors are somewhat pushed to gold as a safe-haven investment."

According to economist Tavex Romania, inflation and a certain degradation of the geopolitical environment are reasons that explain the evolution of the price of gold in the last period.

"In the United States, inflation has not yet fallen below 3% in the last three years. The Federal Reserve still hasn't reduced inflation to 2%, and I really think it's pretty far from that. Another factor that contributed to the evolution of the price of gold is a geopolitical degradation, through a division between the West and the East. We see opposite trends in acquisitions in the West, namely Europe and the United States, compared to the East. In China in particular, we are seeing massive purchases of gold in the retail market; purchases of bullion and coins this year have increased by 42%. In Europe, demand fell by 53%. The same trend is seen in capital movements in ETFs. We see capital outflows, i.e. gold sales in Europe, respectively some stagnation in the United States, respectively capital inflows, i.e. gold investments, in Asia", said Nicolae-Daniel Voloscsuk.

In his opinion, another factor that has led to the increase in the price of gold is the demand of central banks. In 2022 and 2023, gold purchases reached all-time highs of 1,082 tonnes and 1,037 tonnes. The first quarter of this year also indicates a similarly strong trend. Or, between 2010 and 2012 inclusive, the annual purchases of gold by the central banks were about 480 tons, according to the economist.

"Therefore, against the background of two military conflicts in Ukraine and the Gaza Strip, of geopolitical tensions between East and West, but also in the light of macroeconomic uncertainties, from my point of view, there are all the necessary factors for the price of gold to increase, in the following Monday", said Nicolae-Daniel Voloscsuk.