The recent surge in gold prices has sparked a flurry of activity in London's Hatton Garden jewellery district, where gold dealers like Hatton Garden Metals are experiencing unprecedented demand. Emma Siebenborn, the strategies director at the family-run dealership, shows off a tub of shabby jewellery worth around £250,000. Despite its unassuming appearance, this collection of gold scrap is part of the daily intake that will be melted down and recycled. Alongside these pieces, more elegantly displayed gold coins and bars are also available, with a 1kg bar valued at approximately £80,000.
Emma's sister, Zoe Lyons, the managing director, explains that the current gold market is both exciting and nerve-wracking. She observes long queues of sellers, reflecting a mix of enthusiasm and anxiety about the market's direction. This sentiment is echoed by a salesman at MNR jewellers, who notes the heightened demand for gold.
Gold's price has risen by more than 40% over the past year, reaching a record high of over $3,500 (£2,630) per troy ounce in April. This surpasses the previous peak from January 1980, even when adjusted for inflation. Economists attribute this increase to several factors, including the unpredictable US trade policies under the Trump administration and broader geopolitical uncertainties. Gold is viewed as a stable investment amid such volatile conditions, offering a safe haven for investors seeking refuge from market turbulence.
Louise Street, a senior markets analyst at the World Gold Council, describes the current situation as a "perfect storm" for gold. Factors like potential inflationary pressures and rising recession risks have contributed to gold's appeal. However, she cautions that gold, despite its reputation as a stable asset, is not immune to price fluctuations. Historically, periods of sharp price increases have often been followed by significant declines.
Gold's enduring allure is partly due to its rarity, with only around 216,265 tonnes ever mined according to the World Gold Council. This limited supply reinforces its status as a "safe haven" asset. Unlike stocks or bonds, gold does not offer dividends or predictable income, but its value is not tied to the banking system, making it an attractive hedge against inflation.
One of the major drivers of the recent gold price surge has been the increased demand from Exchange Traded Funds (ETFs). These investment vehicles hold gold as an asset, allowing investors to buy and sell shares in the fund, and have become popular among large institutional investors. Their actions have significantly influenced the gold market.
The current situation mirrors past events when gold prices spiked due to geopolitical tensions and economic crises. In 1980, the Soviet invasion of Afghanistan and rising oil prices drove up inflation, prompting investors to seek gold. A similar pattern emerged after the 2008 financial crisis. Today, the unpredictability of US policies and central bank actions are key factors driving the market.
Recent comments by former US President Donald Trump, criticizing Federal Reserve Chair Jerome Powell and calling for interest rate cuts, have also impacted the gold market. Trump's remarks were seen as undermining the central bank's independence, causing share markets to fall and the dollar's value to drop, leading to a rise in gold prices.
Central banks have significantly contributed to the recent gold price increases by adding to their official reserves. Over the past three years, central bank gold purchases have accelerated, with countries like Poland, Turkey, India, Azerbaijan, and China among the leading buyers. Analysts suggest that central banks are bolstering their gold reserves as a buffer against economic and geopolitical uncertainties.
Daan Struyven, co-head of global commodities research at Goldman Sachs, highlights how the freezing of the Russian Central Bank's reserves in 2022 prompted other central banks to consider gold as a safer alternative. This has led to a substantial increase in demand from central banks.
Simon French, chief economist at Panmure Liberum, notes that independence from dollar-based banking systems has been a major motivator for central banks, particularly in countries like China and Russia. For these nations, holding gold offers protection against potential diplomatic or military conflicts with the West.
The fear of missing out (FOMO) is another factor driving the gold market. With new record prices, more people are interested in buying physical gold, seeking a share of the "golden pie," as Zoe Lyons describes it.
Looking ahead, opinions on gold's future trajectory vary. Some experts believe the upward trend will continue, fueled by unpredictable US policies,