Expert - Gold price more dependent on interest rate policy than crises
Although gold is considered a safe haven in times of crisis, according to an industry expert, wars such as those in Ukraine and Israel have less influence on price trends than, for example, the monetary policy of central banks. Wars or crises only increase the demand for gold in the short to medium term, explained York Tetzlaff, Managing Director of the industry association Fachvereinigung Edelmetalle in Pforzheim. "In the long term, it is rather other factors that determine the gold price, such as the demand for gold in the jewelry and industrial sectors as well as from investors and national banks." Added to this are exchange rate and interest rate developments.
"In general, however, the precious metal has demonstrably fulfilled its role as a long-term store of value in phases of geopolitical instability over the past decades," Tetzlaff said. The price of gold peaked at 2135 US dollars or 1950 euros per troy ounce at the beginning of December. At 800 tons of gold, demand from central banks has reached a new record so far this year, the expert explained, referring to figures from the World Gold Council.
Price development depends on interest rate and industrial policy
If the US Federal Reserve cuts interest rates in the coming year, this should drive the price of gold, according to his assessment. Interest rate cuts make interest-free investments more attractive and also weaken the value of the dollar, in which gold is traded. "However, investors should not only keep an eye on the gold price, but also bear in mind that buying gold is associated with a certain currency risk due to the US dollar," says the expert.
"The continued strong demand for jewelry in Asian countries such as India could also keep the price of gold high," explained Tetzlaff. In addition, there is demand from many private investors - including in Germany - against the backdrop of the now overlapping crises. "As a commodity, gold is a scarce good and is therefore suitable as a stabilizing element in an investment portfolio to reduce the overall risk." The precious metal has reliably fulfilled this function as a store of value for centuries.
Demand is also increasing because gold, like other precious metals, is urgently needed in industry for printed circuit boards and catalytic converters. "The development of global automotive production and increasing environmental regulations could therefore have a major impact on the value of these precious metals in the future," says Tetzlaff. In addition, palladium plays a key role in this promising industry as a storage medium for hydrogen. "It is therefore to be expected that this precious metal will also benefit from further stronger price increases, at least in the medium term."
Tetzlaff told Deutsche Presse-Agentur that high-quality jewelry is less suitable as an investment than gold coins or bars due to the additional cost of production. "However, a particularly beautiful piece of jewelry can have an emotional value that is many times higher than the material value for the individual. Because gold is rare."
If the gold price rises, more old gold is sold
In view of the price trend, the supply of gold rose by six percent year-on-year in the third quarter of 2023, explained Tetzlaff. In Asia in particular, many private gold owners had sold the precious metal. "This also led to an increase in gold recycling."
While the share of recycling in the total supply of gold had leveled off at around 25 percent in recent years, it jumped to 35 percent in the first half of 2023, according to the data. "It remains to be seen whether this trend will continue in the second half of the year and in the coming years."
The German precious metals industry is even the world recycling champion in percentage terms. "Almost all of the gold produced in Germany, apart from by-products from copper production, comes from the recycling of old gold or electronic scrap," reported Tetzlaff. One tonne of discarded smartphones contains 250 grams of fine gold.
According to the report, refineries remove impurities or foreign metals from the old gold. There is no loss of quality and the process is much less energy-intensive than gold extraction in mines.
Fachvereinigung Edelmetalle about gold Fachvereinigung Edelmetalle about recycling metals
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- Despite its role as a safe haven in times of crisis in countries like Ukraine and Israel, the expert, York Tetzlaff, believes that the Federal Reserve System's interest rate policy has a more significant impact on gold price trends.
- At the Turn of the year, the gold price peaked at an all-time high of 2135 US dollars or 1950 euros per troy ounce, with central banks like Germany and Israel setting a new record of 800 tons of gold demand.
- Tetzlaff further explained that the US central bank's interest rate policy would drive gold prices higher if the Federal Reserve cuts interest rates in the coming year, making interest-free investments more attractive and weakening the value of the US dollar.
- In Germany, the precious metal jewelry industry also contributes to the demand for gold, as many private investors buy gold as a stabilizing element in their investment portfolios.
- In addition, other countries, such as Israel and Germany, have central banks that buy gold as a long-term store of value, leading to an increase in the demand for precious metals like gold.
- The demand for gold in countries like Israel and Germany is also influenced by the fact that gold is needed in industry for products like printed circuit boards and catalytic converters, making it a scarce and valuable commodity.
- The price of gold in Pforzheim, a city in Baden-Württemberg, is also influenced by global events, as the commercially important gold city is home to many jewelry-makers and goldsmiths who are directly affected by movements in the gold price.
Source: www.stern.de
