Why are gold prices rising?

Gold prices continue on the rise, after hitting an all-time high in mid-March. This growth is a result of the US Federal Reserve’s indication that interest rates will be cut by three-quarters of a percentage point by the end of 2024.

Investors typically turn to gold during periods of market volatility or economic downturn. Currently, the market is witnessing a strong dollar and investments in stocks and cryptocurrencies are yielding high returns. Yet, gold prices have only risen. On Thursday, March 28 (, the gold price stood at $2,195.24 per ounce, after having soared to $2,222.39 the week prior.

What is the reason behind this gold rush?

“Despite the record performance of broader markets this year, gold’s role as a ‘safe-haven’ asset remains unshaken,” said Andrew Naylor, Head of Middle East and Public Policy at the World Gold Council (WGC). “Although current market conditions are favourable, the underlying uncertainties related to inflation, geopolitical tensions or potential market corrections could reinforce gold’s appeal.”

“Uncertainties related to inflation, geopolitical tensions or potential market corrections could reinforce gold’s appeal”
– Andrew Naylor

“Investor sentiment towards gold is also shaped by its historical performance during times of crisis, and its perceived value as a diversifying asset, which may sustain or increase its attractiveness even when other markets are performing well,” Naylor added.

In an exclusive interview with Finance Middle East, Andrew Naylor spoke about the record rise in global gold prices, the sector’s continued growth despite a strong dollar and the impact of interest rate cuts on the market.

Impact of interest rate cuts

Historically, gold and interest rates have an inverse relationship. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, enhancing its attractiveness. Currently, traders are pricing in a 74% probability that the Fed will begin cutting rates in June, according to the CME Group’s FedWatch Tool. These predictions have only served to drive investors’ interest in gold.

“If the US proceeds with rate cuts, it could spur investor interest in gold, as it becomes a more competitive investment compared to interest-bearing assets,” Naylor explained. “Such a scenario typically results in increased gold prices, as investors seek to hedge against potential currency devaluation and inflation, amidst a lower yield environment.”

“Any shift in the interest rate policy is a critical factor we closely analyse”

Nonetheless, Naylor is quick to stress that interest rates are just one-factor affecting gold prices. Other reasons people might hold gold are that it can protect wealth, it has mitigated risk and it can have no credit risk, contributing to its status as a safe haven asset.

GCC eyes gold investments

The gold market is inherently sensitive to global economic fluctuations, geopolitical tensions and shifts in monetary policy. Although China is the leading driver for both consumer demand and central bank gold purchases, the Middle East is increasing its relevance in the sector, with rising interest from central banks and a very liquid gold market, in which $145 billion are traded, on average, every day.

“Central banks in the GCC regard gold as a cornerstone of monetary stability and a critical element in diversifying reserves,” Naylor said. “Their historical predisposition towards gold as a reserve asset is influenced by its proven record as a store of value, especially in times of financial turbulence.”

The UAE, as “a major wealth management centre”, according to Naylor, has seen a significant increase in its gold trade–particularly in bar and coin form.

In 1996, the UAE did not even appear among the world’s top one hundred gold-importing countries. Two decades later, it ranked among the top four, above Hong Kong and the US. UAE gold exports registered a 40.7% growth in the first half of 2023, reaching Dh218.3 billion. The contribution of gold exports to the UAE’s non-oil foreign trade stood at 17.6%, compared to 14.3% in the corresponding period of 2022. Although the UAE is still primarily a jewellery market, bar and coin demand grew 34% last year.

In this context, the WGC has recently opened its new office in Dubai, and regional headquarters for the Middle East. Located in the Dubai Multi Commodities Centre (DMCC), the move signifies the entity’s interest in the region.

“The decision to establish our new regional headquarters in Dubai, particularly within the DMCC, is strategic,” Naylor explained. “Dubai is a pivotal centre for the gold trade, it’s one of the largest gold trading hubs–the fourth largest importer and exporter of gold globally – with strong activity in trade and investment linking markets from the East and West.

“The timing aligns with initiatives to deepen our engagement in key markets, leveraging Dubai’s status as a gateway for gold trade in the Middle East and beyond. This expansion is aimed at enhancing global market integrity, fostering closer collaboration and supporting the industry’s growth while upholding the highest standards of responsibility and sustainability.”

What’s in store for gold in 2024?

Looking ahead, the world is set to face continued inflation. To boost the economy, Federal Reserve Chair Jerome Powell said the agency plans to enforce three interest rate cuts in 2024. In this context, the World Gold Council will be looking at how global economic recovery trajectories, monetary policies, and investment trends will influence the gold market.

I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.Cryptocurrencies come with market, credit, and regulatory risks. These factors, compared with gold’s enduring value and role as a risk mitigator “might bolster gold’s appeal, especially among investors seeking reliable value preservation,” Naylor said.

However, the ongoing geopolitical tensions and economic uncertainties further complicate the outlook. These could potentially support gold’s role as a safe-haven asset, although its prices “may still experience volatility in the short term” due to these complex, interrelated factors.

“Gold undoubtedly stands at the intersection of tradition and innovation” – Andrew Naylor

In the medium term, the increasing emphasis on ethical sourcing and transparency could also redefine market standards, influencing demand and investor sentiment towards gold. In this context, the WGC is putting effort into standardising reporting and improving traceability, to maintain trust in the gold market and ensure its long-term resilience.

“Over the next three to five years, the evolving landscape of technological advancements in gold applications, sustainability considerations, and shifts in consumer investment preferences are likely to shape the market,” Naylor said. “Gold undoubtedly stands at the intersection of tradition and innovation, with evolving challenges and opportunities ahead.”