The value of gold in dollars has risen by 30% since the start of 2024, setting a new record. This represents the strongest annual performance since 2007, and has even risen by 60% since 2022.  

This spectacular surge in the price of gold is giving rise to much speculation: should we fear a new financial crisis, or can developments in the gold market justify this exceptional increase? In this article, we analyse the reasons for this rise by looking at various economic, financial and geopolitical factors that have influenced gold in recent years. 

1. Gold's upward trend: a long-term dynamic

Since the end of the gold standard in 1971, the price of gold has risen 70-fold, far outstripping the rate of inflation over the same period. Although gold went through a period of ‘downgrading’ between 1980 and 2000, mainly as a result of central banks selling their reserves, it now seems to be regaining its status as a major international monetary asset. Gold's comeback reflects a change in the priorities of investors and financial institutions, particularly in times of economic uncertainty. 

Recent history shows that gold tends to rise in value during periods of crisis. In the 1970s and 1980s, high inflation boosted demand for gold as investors sought to protect their purchasing power. The financial crisis of 2008 also underlined gold's role as a safe haven, encouraging investors to turn to this asset in times of instability. After a period of stagnation and decline from 2011 to 2016, gold resumed an upward trend that continues to this day. The COVID-19 crisis in 2020 marked a major peak, and despite relative stability in 2021 and 2022, the uptrend seems to have accelerated since 2022.

2. Increased demand for physical gold

One of the main reasons for gold's rise is the strong demand for physical gold, particularly from private investors. Since the end of 2022, demand for investment gold (bars and coins) has risen considerably. It has risen from 78 tonnes to 364 tonnes in two years, a 4.5-fold increase, illustrating the growing interest of private investors in this precious metal. 

On the other hand, demand from central banks, while still very high, has slowed since its peak in 2022. Nevertheless, central banks continue to buy gold at historically high, ‘abnormal’ levels. Over the last two years, central banks around the world have accumulated more than 2,000 tonnes of gold, reflecting a desire to diversify their currency reserves. Emerging countries such as China, Russia, India and Turkey have been particularly active in this drive. The main reason for this accumulation is the need to reduce their dependence on the US dollar in the face of international financial sanctions. By diversifying their gold reserves, these countries are seeking to protect themselves against the risks associated with Western currencies. 

This strong demand for physical gold, from both investors and central banks, is creating upward pressure on prices due to the relative scarcity of this metal. Gold is perceived as a safe, tangible asset that is not dependent on the monetary policy of a central bank, and whose value resists and benefits from currency fluctuations. 

3. Record but expensive gold production

According to the World Gold Council, gold production hit a record high in the third quarter of 2024, reaching almost 1,000 tonnes, surpassing the previous record set in the third quarter of 2020. This increase in production shows that mining companies are responding to rising gold prices as they seek to maximise their profits by producing more metal. The good responsiveness of mining production to the gold price suggests that the gold market is working well. This means that mines can increase production capacity in line with demand, which is not necessarily the case in other markets such as silver.  

However, production costs have also risen. Since 2016, the costs associated with gold mining have intensified, due in particular to rising energy prices, general inflation and stricter environmental regulations. For many mines, higher gold prices were essential to offset these rising production costs.  

If the price of gold had remained low, many mines would have had to reduce or cease operations, which would have reduced the global supply of gold. The gold futures market was also very active, with the volume of open contracts at its highest level since 2020. This activity on the derivative market indicates that market participants expect high gold prices in the near future, which supports current demand for physical gold. 

4. Monetary policies and interest rates 

The monetary policy of central banks, particularly that of the US Federal Reserve (Fed), has a major impact on the price of gold. In response to high inflation, the Fed has raised interest rates at a sustained pace in 2022 and 2023, with the aim of containing the rise in prices. In general, high interest rates make non-yielding assets such as gold less attractive, as investors prefer to switch to investments that offer a higher, steady yield, such as bonds. 

However, against this backdrop, the rise in interest rates did not have the desired effect on gold, for a number of reasons. On the one hand, the fear of a recession due to monetary tightening pushed many investors into gold, which is seen as a safe haven in times of uncertainty. Secondly, real interest rates, i.e. those adjusted for inflation, have remained relatively low, which has not discouraged investors from taking an interest in gold. Moreover, in recent months, central banks have begun to stabilise or even lower their rates, a signal that reinforces the attractiveness of gold. 

5. The instability (and rise) of the financial markets 

Financial crises, geopolitical tensions and economic upheavals often create a climate of uncertainty, prompting investors to turn to safe-haven assets such as gold. In August 2024, the financial markets were highly volatile, and the VIX (the fear index) reached levels comparable to those of 2020 and 2008, years of major crises. This stress on the financial markets is exacerbated by factors such as the uncertainty surrounding the US elections in 2024, which amplifies speculation about the direction of US economic policy. 

In addition, speculation about future Fed decisions and inflation expectations are helping to maintain strong demand for gold. The resilience of US economic growth, which has remained above 2.5% for over a year, has also supported stock markets. However, financial market instability and economic tensions persist, making gold even more attractive to investors seeking security. 

6. Bank failures and geopolitical tensions 

The failure of Silicon Valley Bank (SVB) in March 2023 in the United States, and the instability of many banks, sent shockwaves through the banking sector. The failure of other banks, such as Signature Bank, and tensions surrounding regional institutions, have led to fears of risk contagion in the financial system. This situation of bankruptcies, unprecedented since 2008, drove many investors into gold.  

In Europe, the crisis of confidence surrounding Credit Suisse, one of the biggest Swiss banks, also shook the markets in March 2023. Eventually taken over by UBS, the uncertainty generated by Credit Suisse boosted demand for gold. The ghosts of 2008 are still haunting trading floors. This general banking uncertainty has reinforced the need to find assets that are independent of the financial system.  

The growing geopolitical tensions since 2022 have finally fuelled structural changes in geopolitics and market behaviour. Gold traditionally benefits from wars because of its safe-haven and transnational nature. The risk of conflicts in Europe and the Middle East getting out of hand, and the growing bipolarisation of the world, have fuelled monetary and particular demand for precious metals. 

7. The depreciation of the euro and the diversification effect

Despite a relatively strong dollar in 2022, it has shown signs of weakness as the Fed nears the end of its rate hike cycle. A weaker dollar makes gold cheaper for foreign investors, stimulating global demand. In addition, investors' desire to diversify their portfolios to protect themselves against fluctuations in the dollar helped to support the price of gold. 

Rising tensions between the United States and powers such as China over economic and geopolitical issues are also heightening interest in gold as a neutral asset. In a context where dollar-denominated assets are perceived as risky, gold appears to be an effective means of diversification and protection against currency risks. Nevertheless, the election of Donald Trump in the United States has strengthened the dollar's position and led to a fall in the gold price expressed in dollars. 

Symmetrically, the price of gold expressed in euros is more robust because the euro, which is more unstable than the dollar, depreciates more easily. The growing indebtedness of countries and record deficit levels in Europe and the United States are also helping to strengthen gold. The fiscal and budgetary instability resulting from these deficits is undermining confidence in the state. 

What should we bear in mind ?  

Several economic, financial and geopolitical factors explain the surge in gold prices. Since the end of the gold standard in 1971, gold has appreciated significantly, particularly in times of crisis, inflation or falling interest rates. Recently, demand for physical gold has increased, driven by private investors seeking to hedge against economic risks and central banks seeking to reduce their dependence on the dollar. Gold production reached a record high in 2024, but high extraction costs are keeping pressure on supply, supporting prices. 

The Fed's monetary policy, marked by rate rises to combat inflation, has not dampened gold's appeal. Real interest rates remain low, and gold remains a safe haven in the event of a recession. In addition, banking crises such as that of Silicon Valley Bank and geopolitical tensions in Europe and the Middle East are fuelling uncertainty, encouraging investors to turn to gold. 

Lastly, the depreciation of certain currencies such as the euro, and to a lesser extent the dollar, makes gold even more attractive to international investors. In particular, the growing tensions between the world's major powers are reinforcing gold's role as a safe haven and diversification tool. 

All in all, the current record highs in real terms show that this precious metal occupies an unprecedented position in the global financial system, making it an essential asset in wealth management strategies.