The Bank of France, in a recent report, highlighted that the price of gold has doubled since 2019, with a notable acceleration in 2023. According to the Bank of France, this surge is surprising, as it comes despite conditions that would typically lower gold prices—such as rising real interest rates, reduced inflation, and a strong dollar. The Bank of France attributes this unexpected price rise to growing demand from central banks in emerging markets and individual investors driven by geopolitical tensions.

According to the Bank of France, the demand for gold is the main factor determining its price. Supply, which comes from mining (75%) and recycling (25%), has remained relatively stable. On the demand side, jewelry remains the largest sector (49%), followed by central bank purchases (23%), financial investors (21%), and technology (7%). The Bank of France emphasizes that China and India alone account for 57% of the global demand for gold jewelry, while Europe and the U.S. together make up just 21%.

The report also talks about how U.S. interest rates, inflation, and risk appetite impact the price of gold. It notes that while gold is often seen as a hedge against inflation, its correlation with inflation is most noticeable over the long term rather than the short term. The Bank of France explains that geopolitical risks—such as the war in Ukraine—combined with the increasing popularity of gold-backed financial products have amplified the demand for gold.

Moreover, the Bank of France points to a key factor in the recent price surge: purchases by emerging market central banks. The report states that these central banks, particularly those in Russia and China, have been diversifying away from U.S. dollar-denominated assets. According to the Bank of France, this trend, known as “de-dollarization,” has significantly boosted demand for gold.

The Bank of France also says that households in China and India have been increasing their gold investments, particularly in response to declining property and equity markets in China and increased savings in India. According to the Bank of France, this has further fueled the upward momentum of gold prices.

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