Gold price hits record high – could it soar higher?

The much-followed price of gold has climbed to a new record high, reaching $2,566 per ounce and approaching the $2,600 barrier. That’s a gain of more than 20% this year. 

The gold price has surged due to the prospect of lower US interest rates, with the US Federal Reserve widely expected to cut rates next week. 

Central banks have also been buying up gold, especially in countries like Russia and China, which has helped inflate the price. Meanwhile, the metal is increasingly being used in other industries like nanotechnology, cancer therapy and fighting malaria.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The latest all-time high follows a strong rally seen in recent months. In July, the gold price reached a record high of $2,483/oz, while back in April investors got excited when it hit $2,360/oz.

With gold bars typically weighing about 400 ounces, the latest price tag means each bar is now worth more than $1 million.

Investors have been turning to gold to guard against future interest rate cuts. In the UK, the base rate was reduced from 5.25% to 5% on 1 August, with more cuts expected this autumn. 

They have also been investing in the yellow metal to take advantage of the soaring price, provide some diversification to their portfolio, and preserve their wealth amid economic uncertainty.

"The recent surge in gold prices, reaching a new all-time high, is driven by several factors, notably the US Federal Reserve's expected monetary policy changes," comments Anita Wright, independent financial adviser at Bolton James. "The market anticipates a September rate cut, possibly exceeding 0.25%, which is typically bullish for gold."

We take a closer look at the reasons behind the global gold rush, before delving into whether more rises are on the horizon, and how you can invest in gold. 

How do interest rates impact the gold price?

History suggests the gold price does well when interest rates fall. 

This is because central banks typically cut interest rates in an attempt to encourage growth when the economy is stagnating. Stock markets usually struggle in periods like this, so gold can be a good hedge.

What’s more, “gold, which pays no interest, becomes more attractive in a low interest environment”, says Josh Saul, chief executive of The Pure Gold Company. 

The Fed’s rate-setting decisions are particularly important in determining the gold price – more important than the decisions made by other policymakers like the Bank of England, for example.

Adrian Ash, director of research at BullionVault, an online marketplace for gold, silver, platinum and palladium, tells MoneyWeek: "Gold continues its momentum, hitting a record high on Tuesday, 20 August ($2,525.18, or £1,943.30, per troy ounce) as it held the key $2,500 per ounce level in the last session, despite profit-taking attempts.

"Ahead of Friday’s Jackson Hole speech, market consensus is for a more aggressive Federal Reserve rate cut, due to weaker US economic data from last Friday and dovish comments from Federal Reserve officials over the last few days."

What about central bank purchases?

Central banks buying up gold is also causing the price to soar, with unprecedented purchases from emerging markets like China and India, as they hedge against global economic fragmentation. 

Wright notes: "Central banks, particularly in countries like Russia, China, India and Turkey, have dramatically increased their gold purchases, reflecting growing mistrust in the US dollar. This trend is further fuelled by the countries accelerating their efforts towards de-dollarization. 

"Commodities that were traditionally traded in dollars are increasingly being traded in local currencies or gold, which contributes to a weakening dollar. The combination of lower interest rates, a weaker dollar, and strong central bank demand creates a highly favourable environment for gold."

Geopolitical turmoil is also driving the gold price

Interest rates aside, other factors on the global stage are also driving the gold price. The yellow metal is considered a safe-haven asset, so investors often flock to it during periods of volatility in an attempt to escape market shocks.

The world is currently witnessing turmoil in the Middle East, as well as the continuation of the conflict in Ukraine. 

Ash notes that "ongoing geopolitical risks, including the looming threat of an Iranian attack" are supportive to the gold price, "while reports of a potential Gaza cease-fire add to the uncertainty".

Furthermore, more than one billion citizens across the world will be heading for the ballot box in 2024, with at least 64 countries holding elections, according to Time magazine. This includes the US, with a presidential race between Kamala Harris and Donald Trump.

Will gold continue to rally?

Experts predict that if the trio of low interest rates, a weak dollar and high demand from central banks continues, the gold price may well rise further - especially if geopolitical tensions also persist.

Wes Wilkes, chief executive at Net-Worth NTWRK, comments: "It's been quite some gold rush in 2024, although 2023 wasn't bad for gold either. Falling interest rates globally, huge bouts of central bank purchases and continual geopolitical tensions are all strong tailwinds for the shiny metal to push on through to further highs in 2024."

The investment bank UBS forecasts that prices could reach $2,600 an ounce by the end of 2024, while Goldman Sachs expects it to hit $2,700 early next year "buoyed by interest rate cuts by the Federal Reserve and gold purchases by emerging market central bank."

However, there could be some volatility over the next few weeks: Ash cautions that the gold price can move quickly during the holiday seasons, when trading volumes are significantly reduced.

Ways to get exposure to gold

There are three main ways to invest in gold. The first one is investing in the metal itself through a financial contract, such as an exchange-traded product. See our article on the best gold ETFs.

You can also get indirect exposure by investing in the miners that dig gold out of the ground. This can be done by investing directly in their shares, or by buying a gold fund or investment trust.

Lastly, you can buy physical gold bars or gold coins.

In terms of how much gold to hold in a portfolio, Tom Stevenson, investment director of personal investing at Fidelity International, suggests that around 5-10% is a good amount – which is about the same as you might hold in cash. 

“The two offer insurance and dry powder to complement the growth and stability of the shares and bonds that make up the bulk of a balanced portfolio,” he comments.