Gold as a safe haven

How has the gold price performed?

A glance at the gold price shows that since early October 2023 it has risen over 30% in local currency from its low at that point and has gained 20% from the low in February 2024.

What current events are affecting the gold price?

Last weekend the geopolitical situation in the Middle East reached a new level of escalation. Iran took revenge for the killing of members of the Islamic Revolutionary Guard in Syria and attacked Israel with more than 300 missiles and drones. This is just the latest of many worrying developments over recent weeks and months. In times like this, safe haven investments like gold are the main beneficiaries.

What other factors affect the gold price apart from geopolitics?

The price of gold is influenced by many other factors and interacting trends such as inflation, US debt, the negative correlation with the dollar, central purchases of the precious metal, and also the fact that gold is a finite resource and a safe haven currency.

What does Bank CIC think are the key issues?

For Bank CIC, at the moment the most plausible reasons for the current rise in the gold price are as follows:

• Uncertainty (flight into gold)
  Many major investors appear to have lost their unrestricted confidence in global currencies and hence bought gold. The negative correlation between gold and the dollar, which can be seen over extended periods, has recently become a positive. However, it also indicates an intrinsic weakness of both the dollar and other currencies.
• Major purchases by central banks
  ​​​​​​​In 2022 and 2023 central banks added more than 1,000 tonnes of gold to their reserves, equivalent to roughly one-third of annual production. A report from the World Gold Council shows that it is mainly central banks in Asia that have been accumulating gold, with China acquiring the most, followed by Singapore and Poland. If not driving the price, this is at least supporting it.
• Hopes of interest rate cuts - (declining?) inflation
  Last year the pronouncements of Fed Chair Jerome Powell pushed the gold price all over the place. Obviously, it’s good for gold if interest rates come down again. In our view, though, hopes of rate cuts were already discounted in the higher gold price at the end of last year.
• Geopolitical factors (wars in Ukraine and Gaza)
  Fears of war naturally also raise the general level of uncertainty. But we do not feel these conflicts are the main driver right now.​​​​​​

​​​​​​​Where does Bank CIC think the gold price will go from here?

We believe the gold price will not continue to enjoy such a buoyant ride. Our assumption is that there will be a consolidation in the near future which will offer opportunities to get back on board. In the longer term we observe strong momentum for gold and following the breakthrough at USD 2,050, a significant level on the chart, we expect the price to move towards USD 2,800 per ounce. At the moment, though, our target for this year is USD 2,350 per ounce.