"Rate cuts generally push gold prices higher because investors look for safe-haven assets when interest rates are low," Kibbel says. Kibbel says he's seen clients move money from bonds to gold during these periods, seeking a stable store of value. History also supports this trend.
It follows that when the US Federal Reserve (also referred to as the Fed) hike interest rates, this can have a profound effect on the gold price. A hike will usually see gold prices drop, while a decrease helps keep gold high.
If interest rates are low, investors have few opportunities to make investments with positive yield, and will be more likely to buy gold. Thus if interest rates go up, the demand for gold will drop, and the price of gold will fall.
Interest rate cuts drive market response
“Gold prices usually rise in a low-interest-rate environment. With two consecutive cuts from the Fed and potential rate cuts from the RBI, we expect this to support the yellow metal further," he said.
Fluctuations in financial markets can also cause volatility in the price of gold. However, because so many investors purchase gold as a safe-haven asset, its value remains relatively constant. Long-term investments in the precious metal are unlikely to experience losses.
Short-term price predictions for gold suggest an increase in its value and demand in the next years, at least until 2030, showing the price could gradually rise to around $7,000 an ounce. But price predictions beyond this date could depend on different scenarios.
Due to its reputation for being a safe-haven asset, gold tends to perform well during a recession. For example, when the stock market collapsed in 2007, investment demand for gold spiked and continued to rise, and gold doubled in value between 2007 and 2011.
A physical gold investment comes with an ongoing risk of theft, so it's wise to keep your gold bars and coins in a safer and more protected place, like a bank safe deposit box. The fees to store and insure the precious metal can add up to a large amount and detract from your investment gains.
The reasons why gold prices may experience a fall in value include an excess of supply relative to demand and shifts in investor sentiment. A strong dollar and rising interest rates can also hurt the price of gold, as can low inflation.
(There is less demand for inflation-proof assets.) When the interest rate is falling faster than deflation, the real interest rate declines and silver prices rise.
Gold prices are expected to continue their upward trend, potentially reaching $3,000 an ounce by December 2025. This prediction is based on several factors, including increased central bank demand, US interest rate cuts, and heightened geopolitical tensions.
Most forecasts for the remainder of 2024 project an increase in the price of gold due to economic instability, rising geopolitical tensions, and declining confidence in traditional financial assets.
Looking at its average performance since 1975, history tells us that the start of the year, March and late April are the best times to buy gold, per the Gold Bureau.
Investing in 1-ounce gold bars can help you hedge against economic instability and inflation, which could be advantageous in today's financial environment. Adding a small slice of gold to your portfolio may also provide diversity and stability to your holdings.
Personal finance website The Balance recommends a range of 5–10% for holdings in gold. “Depending on your situation and your risk tolerance, you might be more comfortable with a bigger or smaller share of gold in your portfolio,” the website notes.
While the benefits of investing in gold include its use as a store of value and its status as a safe haven asset when there is volatility in the stock market, it's not right for everyone. Keep in mind that the price of gold does fluctuate, meaning it can quickly lose value and is a poor short-term investment.
In a recession, it's smart to preserve your capital by investing in safer assets, such as bonds, particularly government bonds, which can perform well during economic downturns.
The more common pattern in a stock-market crash is for gold to drop as equities sink. But it falls less and from higher ground before finding its floor sooner.
With all this in mind, we could expect the price of gold to be higher in 2022, based on the following predictions: With inflation raging and the US debt piling up, gold could move from its current price to as high as $3,000 (approximately £2,500) per ounce throughout the next five years.
When will we run out of gold? Some experts have estimated we'll run out of gold to mine as soon as 2050. Around 240,000 tonnes of gold has been mined in total, according to the US Geological Survey, but the below-ground stock of gold reserves was estimated to be around 50,000 tonnes four years ago.
It all depends on your market position and the state of your portfolio. A good rule of thumb is this: Buy silver if you're investing for when times are good. This is a semi-predictable speculation asset that can make you some real money. Buy gold if you're investing for when times are bad.