Gold has always held a significant place in human history, primarily as a medium of value and exchange. Beyond its aesthetic appeal, it’s seen as a safe-haven asset during times of uncertainty. Many view gold as a solid investment to counter inflation and currency depreciation since it isn’t tied to any specific issuer or government.

The central bank is typically the largest monetary holder. To bolster currency stability during tough times, central banks often acquire gold to diversify their reserves. This approach helps reinforce the perceived strength of both the economy and the currency. In fact, in 2022, central banks added an impressive 1,136 tonnes of gold to their reserves, according to the World Gold Council, marking the largest annual purchase on record. Countries like China, India, and Türkiye are significantly increasing their gold assets.

Gold generally moves inversely to the US dollar and US Treasury bonds, both of which are established reserve assets. When the dollar weakens, gold prices typically rise, allowing both investors and central banks to balance their portfolios. There’s also an inverse correlation with risk assets; for example, when stock markets rally, gold prices may drop, while downturns in high-risk markets can boost gold’s appeal.

Various factors influence gold prices. Concerns over geopolitical tensions or a potential recession can quickly elevate gold prices due to its safe-haven status. Since gold doesn’t yield any returns, lower interest rates often lead to price increases, while higher rates can weigh it down. Yet, the primary determinant remains the behavior of the US dollar, as gold prices are dollar-denominated. A robust dollar tends to suppress gold prices, whereas a weak dollar can drive them up.