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What are the Reasons Behind the Rebound in the Price of Gold in 2024?

Updated: Apr 11

The recent rally in the price of gold, reaching new all-time highs, is important to understand. Although it is impossible to fully determine the specific cause of this rise with complete certainty, here are some of the  possible factors behind it.

Gold figures of a bull and a wolf, gold bars
Potential factors behind the rebound in the price of gold.

Treasury Yields in Decline 

The US Treasury yields, the main indicator of the interest rate in the US, fell 1.2% in February. This, combined with persistent inflation, decreases investors' interest in investing in Treasury bonds and encourages them to look for other alternatives with a similar degree of risk but higher returns. This is why as of April 9, 2024, the price of gold has exceeded $2,360 dollars per ounce, which represents an increase of 14.5% in the first 100 days of the year, despite the fact that the demand for ETF’s (exchange-traded funds) linked to the price of gold is still moderate. 

This allows us to infer that the increase in demand for gold, and its impact on its price, has been driven mainly by large investors and that this has not yet caught the attention of minority investors, potentially leaving space for more headroom.

Central Banks Increasing their Reserves

Another possible cause of the increase in the price of gold is an increase in gold purchases by central banks, which are still very strong according to the latest data from January, 2024. During that month, central banks increased their official gold reserves by 39 tons. This figure represents an increase of over 100% compared to the gold acquisitions made by these entities during December 2023, and represents the eighth consecutive month of net increase in gold reserves by central banks. 

The main countries contributing to this increase were: Turkey, China, India, Kazakhstan, Jordan and the Czech Republic.

The United States' threat to permanently seize $300 billion in Russian financial assets in order to sell them and transfer them to support Ukraine has been a reason for alert among the central banks of multiple countries, especially those not aligned with the United States (for example BRICS members, officially made up of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates), which has led them to prudent diversification towards non-dollar denominated assets.

Flags of the countries that are part of the BRICS
Brazil, Russia, India, China and South Africa make up the original BRICS group.

Investment in Raw Materials

In the United States, the PMI (Purchasing Managers’ Index) of the manufacturing sector corresponding to February 2024 fell far below expectations, highlighting the growing risk of a possible slowdown of the economy and a possible correction in the stock market. This apparently led some big investors to sell shares in companies and transfer their capital to invest in tangible assets, such as gold. 

This contributed to a sudden increase in the price of gold, according to the latest data from the Commodity Futures Trading Commission (CFTC). The report also highlighted the recent rally in the price of gold has brought to light the growing disconnect between the price of physical gold and the recent disinvestment in ETF’s linked to the price of gold by individual investors. These outflows have been mainly compensated by the persistent demand of central banks for the precious metal, which contributed to keep the price of gold high. 

China and the Geopolitical Situation

Simultaneously, gold demand in China is driving the growth in the price of gold, with large volumes of the precious metal being transferred from West to East. Chinese consumers, the main individual gold buyers globally, acquire the precious metal as a protection against problems in the country's stock markets and real estate sector.

Finally, the rally in gold’s price is also motivated by a combination of geopolitical upheavals and tensions, such as Israel's conflict with Palestine, the war in Ukraine, and the rising tensions between the United States and China. According to specialists, the accumulation of these conflicts increases the possibility of a "black Swan", a term used to describe sudden, geo-political, social or economic accidents, with large-scale impact and which, by their nature, are inevitable and impossible to predict. 

Thus, in 2024 it is expected the gold price continues going up, as a consequence of the growing interest of individuals, investors and central banks in protecting their money in a safe financial haven, in the midst of international geopolitical uncertainty.

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