What are the reasons behind people’s decision to invest in Gold?

Gold has been pivotal throughout the course of human history, serving as a widely utilized means of preserving wealth and facilitating transactions. Currently, in addition to its luster and its use in jewelry, the precious metal is widely regarded as a safe-haven asset, indicating that it is considered a sound investment during periods of instability. Gold is commonly regarded as a safeguard against inflation and the devaluation of currencies because it is not dependent on any particular issuer or government.

Which entity purchases the largest quantity of Gold?

Central banks possess the largest quantities of Gold. Central banks often seek to bolster their currencies during periods of instability by diversifying their reserves and acquiring Gold, so enhancing the perceived robustness of the economy and the currency. A country’s high gold reserves can serve as a reliable indicator of its financial stability. In 2022, central banks acquired 1,136 tons of Gold, valued at around $70 billion, as reported by the World Gold Council. This represents the highest annual buy ever recorded. Central banks of emerging economies such as China, India, and Turkey are rapidly augmenting their holdings of Gold.

What is the correlation between Gold and other assets?

Gold exhibits a negative relationship with the US Dollar and US Treasuries, both of which are significant reserve and safe-haven assets. When the value of the Dollar decreases, the price of Gold typically increases, allowing investors and central banks to spread out their investments during periods of instability. Gold exhibits an unfavorable correlation with risk assets. Stock market rallies typically exert downward pressure on the price of Gold, whilst sell-offs in more volatile markets tend to benefit the value of this precious metal.

On what factors does the price of Gold rely?

The price can fluctuate as a result of a diverse array of circumstances. The price of Gold can rapidly increase due to its safe-haven status in response to geopolitical upheaval or concerns about a severe economic downturn. Gold, being an asset that does not generate yield, typically increases in value when interest rates are low. Conversely, when the cost of borrowing money is high, it usually has a negative impact on the price of gold. However, the majority of movements are contingent upon the behavior of the US Dollar (USD) since the asset is valued in dollars (XAU/USD). A robust Dollar typically exerts control over the price of Gold, whereas a depreciated Dollar is prone to driving up Gold prices.