A peculiar concoction of circumstances is propelling the safe-haven asset to new heights.

Stay calm. Stealthy. That is unexpected. Wall Street analysts said they were caught unawares by the record high gold prices.

Historically, the precious metal has been considered a safe haven during periods of political and economic uncertainty. On this occasion, its rise is occurring at the same time as investors’ optimism regarding the US economy is sending riskier assets, such as equities, to new heights. Bitcoin has also surpassed its earlier high.

According to Thursday’s analysis by J.P. Morgan Global Commodities Research, the severity of gold’s sudden surge to new nominal highs has caught us off guard.

For the last seven trading sessions, gold futures have made advances, and for the last six, they have broken records. The record settlement price of $2,179 per troy ounce for March delivery futures brought gold’s gains for the year to 5.6%.

The explanation of some triggers is simpler than that of others.

The most recent surge followed a decline in consumer sentiment and mild inflation data from the Federal Reserve, which stoked expectations of interest rate cuts this year. Gold, unlike equities and bonds, which pay dividends and interest, is more appealing when interest rates are low because it does not provide any income.

The magnitude of the shift and the increase of gold prior to that, however, necessitate further explanation.

An increase in real yields, or interest rates after inflation, is gold’s worst nightmare. Despite this, gold’s price has risen by 20% since 2020’s close. The Fed’s efforts to combat inflation have caused real yields to soar from almost minus 1% at the end of 2021 to roughly 1.8% now, which has led to a decline in the value of gold ETFs in the US market.

Central banks worldwide started purchasing gold following the 2008 financial crisis and stepped up their purchases following Russia’s invasion of Ukraine in early 2022. This is partly due to a perception of increasing economic and geopolitical threats beyond the U.S.

Once Hamas attacked Israel in October, the price of gold surged by 5%. Since the war started, it has risen by 19%.

Central banks’ stockpiling of gold has increased in the previous two years, reaching 30% of the world’s mining output. According to Suki Cooper, a precious-metals analyst at Standard Chartered, these institutions purchased four times as much gold as U.S. ETF investors sold last year.

According to the World Gold Council, the purchasing frenzy has persisted at least until January of this year, spearheaded by China’s and Turkey’s central banks.

Along those lines, the Royal Mint reported an increase in gold purchases during the UK’s recession in late 2023. According to MKS PAMP’s metals expert Nicky Shiels, China’s demand for gold has likewise been unquenchable. The real estate market has taken a beating, and the benchmark stock index began 2024 with a 6.3% decline in January, continuing a three-year losing streak.

It’s all about buying fear, according to Shiels.

Demand for her firm is strong in other markets. India has one of the world’s fastest-growing economies, and investors there are looking for ways to protect themselves from inflation.

Run into an impasse

Some are doubting the sustainability of gold’s recent gain, including Greg Sharenow, Pimco’s head of commodities and real assets. He warned that some central banks would be hesitant to purchase more bullion at its current record high prices because of the significant role they have played in its ascent.

He described them as the tailwind, but because prices have changed so dramatically, it’s difficult to tell if they’re still as strong.

Systematic trend-following traders have been a major force in driving up gold prices through futures purchases, but they are now approaching their maximum long positions, according to TD Securities. That makes a significant price increase very improbable.

Even though interest rates are still high, both retail and institutional investors in the United States have been selling gold, but at a lower volume than usual. Analysts speculated that some investors may be hoarding gold as a hedge against the possibility that the stock market’s recent surge might be excessive.

An event that sets off

In December, gold experienced its most recent record run as the so-called “everything rally” was ignited by the possibility that interest rates had reached their top.

It is possible that comparable factors are influencing the most recent rise. There needs to be more of a signal that the Fed will drop rates soon, but many on Wall Street think the gains can continue.

The price goals set by Citigroup, J.P. Morgan, and TD Securities are $2,300.

Goehring & Rozencwajg Associates managing partner Leigh Goehring is putting his money into mining firms because, at their current prices, he believes they will do better than gold. While the S&P 500 has gained 7.4 percent so far this year, the VanEck Gold Miners ETF has lost 4.4 percent.

According to Goehring, Western investors should wait for additional proof of impending rate reduction before selling their shares and buying gold. Conviction, in his opinion, may happen at any moment.

When will it finally give way? He spoke. A complete and utter turnaround is entirely possible.