ALBAWABA – In an enlightening discussion on Bloomberg's What Goes Up podcast, Joe Cavatoni, the market strategist and head of Americas at the World Gold Council, delved deep into the factors affecting gold prices and markets.
As many investors and analysts frequently ponder the intricacies of gold's valuation, Cavatoni's insights provided clarity on this age-old investment.
Economic expansion serves as one of the main drivers for gold demand, according to Cavatoni. With rising economic prosperity, there is an increase in investments in jewelry and technological products, many of which use gold components, like the iPhone.
"Economic expansion leads to greater personal wealth, resulting in more investments in assets like gold," he told Bloomberg.
Apart from its consumption in various products, gold is also a highly sought-after investment asset. Especially in key markets like China and India, gold doubles up as both a consumer commodity and a savings instrument.
Cavatoni highlighted on the podcast how gold's performance is intrinsically tied to market fluctuations. "Gold's value often moves in correlation with market indices like the S&P 500, reinforcing its importance in investment portfolios," he stated.
The global appeal of gold cannot be understated. Countries like China and India play pivotal roles in driving demand and value.
Meanwhile, gold's universal trade and consumption patterns introduce a multitude of variables that can influence its valuation, as reported by the World Gold Council.
Reflecting on 2023's impact on gold, Cavatoni mentioned the challenges faced due to prevailing monetary policies.
"Gold isn't always the primary asset focus during major monetary shifts. However, post their initial allocations, many investors recognize its stabilizing effect and reintegrate it into their portfolios," he said.
On the other hand, systemic events, like banking crises, periodically thrust gold into the financial spotlight.
Cavatoni noted that despite occasional surges in demand, gold's price in 2023 ranged mainly between $1,850 and $1,950. This price behavior, he explained, is often influenced by consistent purchases from central banks.
When quizzed about the preference for gold over other assets like Treasuries, Cavatoni emphasized its unique attributes.
"Gold's limited availability promises a favorable long-term trajectory, and its impressive liquidity makes it a preferred choice. Unlike other assets that might be affected by credit ratings or specific currencies, gold stands its ground," he remarked.
However, in the short term, that’s another story.
For example, according to Google Finance, continuous gold contracts prices increased over the month to August 4. But it also dropped from the month-high of $2,019.60, on July 19, to $,1976.10.
More so, the Yahoo Finance chart below shows how gold prices fluctuate over time, despite being on a long-term upwards trajectory.
Eventually, it depends on the term of your investment.
If you’re looking to make a quick profit, AlBawaba has found that gold is not your go-to investment.
In summary, as Cavatoni aptly shared on the podcast, gold remains a multifaceted asset, driven and affected by various factors.
Its value is shaped by global, economic, and market intricacies, ensuring its continued relevance in the investment world.
