Gold prices have been on the rise in recent years, reaching record highs along the way. From its 2020 average of US$1,775.58, it went on to average $1,799.32 in 2021 and $1,804.36 in 2022. By October of 2023, gold was averaging $1,940 per ounce, up 7.4% since earlier in the year. These increases are part of a trend of incremental growth, with predictions that the average price of gold in 2023 will exceed $1,950 and could possibly end the year above $2,000 per ounce. Looking ahead, estimates suggest that average prices in 2024 will be significantly higher, and they may surpass $2,100 per ounce in 2025.
These increasing prices reflect certain underlying fundamentals in global economy, supply and demand as well as the increasingly hostile political world. Gold prices are influenced by supply and demand both for physical gold and as instruments for trading, as well as by macroeconomic factors and other financial market instabilities.
Furthermore, the dynamics of investment demand are particularly influential in determining gold prices. For example, net investment demand – which saw investors collectively buy 16 million oz. of physical gold in 2018 and 17 million oz. in 2019 – was relatively low leading to stagnant gold prices during that time. However, in 2020, amid the worldwide economic disruptions caused by the COVID-19 pandemic, there was a significant spike in investment demand with investors purchasing 40 million oz. of gold, which supported strong gold prices.
In the years to come, economic and political uncertainties are expected to play key roles in driving investment demand and thus gold prices. CPM Group predicts that net investment demand could exceed 30 million oz. in the next year, possibly approaching 40 million oz. in 2025. These heightened levels of demand would be driven by a combination of volatile, global events that continue to unfold.
Another contributing factor to gold prices is the influence of central banks worldwide, which have been steadily adding gold to their monetary reserves. Their buying trends are closely related to gold prices, and while there may be brief fluctuations, the long-term trend is expected to continue.
On the other hand, predicted fluctuations in mine production and secondary supply of gold jewelry are also expected to impact gold prices. CPM Group projections suggest that while mine production may stabilize for a few years, it is likely to decline after 2024. Secondary supply from jewelry owners is projected to rise sharply over the next two years, followed by a decline assuming long-term projections of lower future gold prices prove accurate.
So in conclusion, despite some misconceptions, the record gold prices aren’t high due to a slow or low demand but are rather driven by a combination of supply, demand, political uncertainties and economic conditions. This trend is likely to continue into the foreseeable future with a mix of these factors continuing to impact gold prices, and prospective investment and central bank demand could provide further support to the market.
