Can the gold price surge above US$2,000 again this year?

Where to next for the gold price?

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Key points

  • The price of gold is fetching US$1890.57 per ounce 
  • During early March, the yellow metal surged above the US$2,000 barrier before quickly giving up its recent gains 
  • The gold price can reach above US$2,000, however, several factors need to play into its hands 

The price of gold has fallen in recent memory despite the current turmoil impacting the global markets. In times of uncertainty and volatility, the yellow metal is traditionally seen as a safe haven.

During March 2022, the spot price of gold spiked above the psychological US$2,000 per ounce barrier before quickly retracing.

In that brief moment, gold hit a multi-year high of US$2,070.13, as investors reallocated their portfolio assets.

At the time of writing, the price of gold is fetching US$1,890.57 per ounce. This means that the precious metal has lost 4.13% since the start of this year.

What’s weighing down the price of gold?

If history is anything to go by, gold should be gleaming to record highs today.

Changes in interest rates, inflation and demand for gold jewellery and bullion along with Russia’s invasion of Ukraine should be valid reasons. However, the price of gold has dropped almost 3% in the past month.

For example, China is a key market for gold purchases, particularly gold jewellery.

While the Asian giant is under tough COVID-19 restrictions, with shops remaining closed, this is expected to severely weaken demand.

And should the situation persist and disposable incomes of consumers are affected, then depressed demand may remain. Low demand in a key market such as China or India can drag down the price of gold.

In addition, with interest rates likely to lift, this can also drive investors away from the yellow metal.

There is a correlation as when interest rates are low, this reduces the opportunity cost of holding non-yielding bullion. On the other hand, when interest rates rise, investors begin to shift from gold to bonds.

Can gold break the psychological US$2,000 barrier?

The current environment is extremely fluid, given the number of macro factors that are occurring on the world stage.

Inflation, rate hikes, geopolitical tensions and the unpredictability of global markets is influencing the price of gold.

Although it appears the market has already priced in potential interest rate rises, gold could surge yet again. This is because of the extremely high levels of inflation which could dent economic growth, leading to slower-than-expected rates hikes.

Looking at the two largest ASX gold mining companies, Newcrest Mining Ltd (ASX: NCM) and Northern Star Resources Ltd (ASX: NST), their shares have dipped 6.45%, and 15.85%, respectively in the past week.

For gold prices to break the US$2,000 barrier, an escalation in the Russian war or drawn-out rate hikes are needed.

Motley Fool contributor Aaron Teboneras has positions in Northern Star Resources Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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