The experts at Lombard Odier, a Swiss bank, think they’ve figured out why the price of gold has been going up so much lately. In a recent report, they looked at a bunch of different reasons to see what might be causing it.
They found that gold’s price has been going up a lot, even though it didn’t really help investors when inflation was going up in the past few years. So, why is it going up now?
They think it’s because of a mix of things, like inflation, real interest rates, and how risky people think the stock market is. Also, central banks buying a lot of gold and people feeling worried about the stock market being too expensive could be part of it.
To understand more, Lombard Odier looked at how these factors affected gold’s price in the last part of 2023 and the first part of 2024.
In the last part of 2023, gold’s price didn’t go up as much as these factors suggested it should have. This was because real interest rates went down, and there was a lot of chaos in the stock market in October. Gold was expected to go up by about 7%, but it only went up by around 4%.
But in the first part of 2024, gold did much better than expected. Even though these factors suggested gold’s price should have stayed about the same, it actually went up by about 8%. This makes them think that gold might be catching up to what it should have done before. However, some things, like real interest rates going up, have confused experts, suggesting there might be other reasons why gold’s price is going up.
The experts said it’s really hard to find out what other things might be affecting gold’s price, but they have a way to get clues. They compared what a basic model says gold’s price should be with its actual price in the market.
In their report, they showed this comparison in a chart. On one side, they showed what their model says gold’s price should be, which is around $1,700 per ounce. On the other side, they showed how much gold’s actual price in the market has been different from this model since 2003. They also looked at how much gold central banks have been buying during this time, as this might explain part of the difference.
The experts realized that they might have missed something important in their earlier analysis. They found that the amount of gold central banks have been buying might be a key part of why gold’s price has been going up, especially since 2003 when central banks started buying more gold.
But, they also noticed that just looking at central bank gold purchases isn’t enough to explain why gold’s price has been going up so much lately. They think there might be other reasons too.
One idea is that even though the stock market has been doing well, some investors might be getting worried about it. They noticed that gold’s price went up a lot in the first two weeks of April, which could mean that investors are being more careful with their money.
They also looked at a comparison between gold prices and how attractive the US stock market seems. They found that when corporate earnings grow faster than stock prices, it shows that stocks aren’t as appealing. This could explain why gold’s price has been going up even though stocks are doing well overall. It suggests that some investors might be avoiding stocks for now and turning to gold instead.
The experts think that this idea fits well with what’s happening in the stock market right now. They believe it could be an important part of why gold’s price has been going up recently.
