Gold prices have experienced significant volatility in recent months, drawing widespread attention, with predictions from major international institutions adding to market uncertainty.
Where to begin
JPMorgan recently stated gold could reach $6,000 per ounce by year-end, yet a July report suggested average prices around $4,400 per ounce in the second half, potentially dipping to $3,500 if the Fed raises rates. Next year, prices are expected to rise again, with the structural bull market intact. Goldman Sachs and UBS forecast short-term prices at $4,900 and $5,200 per ounce, respectively, while both are bullish on gold's long-term value. The World Gold Council's latest report indicates gold will remain a global macroeconomic barometer, with prices likely fluctuating modestly around $4,100 per ounce this year; increased geopolitical risks or economic deterioration could easily trigger a new upward trend.
Why central banks keep buying
Amid gold's price swings this year, the People's Bank of China has added gold for 20 consecutive months, accumulating over 40 tons in the first half of 2024, bringing its total reserves to approximately 2,346 tons (75.44 million ounces) by June. Poland's central bank has purchased 82 tons this year, with plans to buy nearly 70 tons more. Central banks in Uzbekistan, Kazakhstan, the Czech Republic, the UAE, and Singapore are also consistently increasing their gold holdings.
Central bank transactions differ from those of short-term investors. Gold recently behaved like a risk asset, with a sharp decline driven by its rapid prior ascent, excessive gains, and rising U.S. real interest rates, triggering technical selling and chain reactions. The transition from sharp volatility to minor fluctuations and stabilization near $4,000 per ounce reflects the fading of short-term catalysts. Thus, gold prices are likely to remain around $4,000 per ounce for the next six months.
Why the long-term outlook is positive
Despite widely divergent views among analysts—some forecasting "unimaginable" highs while others warn of a crash—gold's long-term value is supported by several core factors.
First, gold's rise reflects dollar depreciation. Before a major technological breakthrough, global fiat currencies are likely to continue losing value. Governments typically respond to economic challenges by printing more money, whether to address high debt, fiscal pressure, or support growth and employment. This persistent money creation leads to currency devaluation, which in turn supports higher gold prices. The U.S. faces significant difficulties in resolving its massive debt and employment issues. As the world's core currency, the dollar's movements have the most direct impact on gold.
Therefore, after periods of speculative frenzy and sharp price swings—including periods where gold behaves as a risk asset—prices will stabilize at a reasonable level in the short to medium term, but the underlying logic for long-term appreciation remains intact. Essentially, rising gold prices do not mean gold is appreciating, but rather that currencies are depreciating.
Second, gold is a tier-one reserve asset. In the financial system, any paper currency—whether the U.S. dollar or the euro—is merely a credit certificate issued by a government and can be printed repeatedly. When a country's debt becomes unsustainable, the real purchasing power of its currency erodes, whereas gold is a super-sovereign hard asset that cannot be created. Central banks accumulate gold not for short-term profit or to trade on volatility, but as the ultimate insurance to hedge against diminishing fiat currency credit and systemic tail risks.
This financial logic also applies to household asset allocation. Investors should abandon short-term speculative thinking. The core function of gold is to serve as a solid wealth firewall when macro risks intensify and paper currencies depreciate sharply.
Third, the gold bull cycle is not over. Over the past 50-plus years, gold has experienced three major rallies. The first, from 1970 to 1980, saw prices surge from $35 to $850 per ounce, driven by the collapse of the Bretton Woods system, which ended the dollar's convertibility to gold, coupled with soaring inflation and the oil crisis, prompting a global rush to buy gold as a store of value. The second, from 2001 to 2012, saw prices rise from $279 to $1,921 per ounce, fueled by declining dollar credit, the subprime mortgage crisis, and persistently low global interest rates, making gold a sought-after asset. The third rally, from 2018 to the present, has seen prices climb from $1,160 to $5,300 per ounce earlier this year, driven by U.S.-initiated trade wars severely undermining dollar credit, prompting central banks to reduce dollar holdings and increase gold reserves, alongside global monetary easing.
Notably, the current rally has lasted only about seven years and the percentage gain is far smaller than the previous two. Moreover, the U.S. faces more severe economic and debt conditions than in prior cycles. As a result, central banks continue to accumulate gold to safeguard their currencies and exchange rates. To gauge how long this bull cycle will last and when gold prices might truly turn lower, watch for when central banks shift from buying to broadly selling.
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