Gold benefits from resurgence in demand due to global uncertainties

Gold prices are gaining and have hit a record high last week propelled by major geopolitical tensions and expectations of interest rate cut in the world’s largest economy, the United States.
These, analysts say, push global investors to turn to gold as a neutral reserve asset.
Gold’s role in the economic and investment landscape has long been a subject of considerable debate.
“Historically, gold has served as a store of value, safe haven and internationally convertible asset for millennia,” QNB said in a recent research note.
In fact, gold has even underpinned the global monetary system during the Gold Standard (1871-1914) and the Bretton Woods System (1945-1971), when major currencies had to be pegged to the yellow metal in order to be considered “convertible” or a true reserve currency.
Despite its non-income-generating nature and the expenses involved in its extraction, gold continues to be held in high regard by investors, including households, sovereign states, and corporations. Its enduring appeal lies in its proven ability to act as a reliable store of wealth, safeguarding assets against periods of significant economic distress and systemic macroeconomic challenges, such as the Great Financial Crisis of 2008-09 or the Covid-19 pandemic of 2020-22.
Importantly, after a significant slide from the pandemic highs, gold has recently benefited from a resurgence in demand.
Spot gold gained 1.2% to $2,220.85 per ounce on March 28, logging its best month since July 2020, at a 9% increase, and a second straight quarterly rise. Bullion hit a record high of $2,225.09 per ounce earlier.
Gold could rise further if the markets start to expect a deeper Fed cutting cycle, and has the potential to “hold on to these highs, but we do see signs of buying exhaustion emerging in the very near term,” said Daniel Ghali, commodity strategist at TD Securities.
According to QNB, gold has recently demonstrated again its enduring value as a safeguard against inflation. In the aftermath of the pandemic, monetary authorities in advanced economies faced significant challenges due to a surge in inflation.
This created concerns about the rapid pace of decline in the “real value of money,” as more units of currency would be needed to buy the same baskets of goods and services.
Not surprisingly, during this period of higher inflation, gold prices reached all-time highs. This offered a compelling affirmation of the long-held belief that gold is an effective hedge against inflationary pressures.
Second, the monetary policy cycle in the US and Europe should soon become a tailwind for gold prices. While nominal yields are now much higher than they were in the recent past in most advanced economies, this dynamic is set to change significantly in short order.
Third, the current global economic climate is beset with geopolitical uncertainties, such as the Russo-Ukrainian War, ongoing conflicts in the Middle East, and increasing US-China tensions in the Taiwan Strait.
“These factors can contribute to a heightened risk premium on traditional assets, steering investors to hedge with alternative safe havens,” QNB noted.
With its proven track record as an inflation hedge, gold has reaffirmed its position as a cornerstone of alternative investments.