Why are gold prices so high this year?

Gold has always been a sought-out investment. But in recent months, its price has reached near-record highs. In April, the spot price of gold hit $2,048 per ounce, approaching the record of $2,067 set in August 2020. While prices have since cooled, they still hover around $2,000, and experts predict that could remain the case for some time.

What has led to gold's popularity? Below, we explore the contributing factors, as well as what they can tell you about the value of this particular investment.

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Why are gold prices so high this year?

Several factors are responsible for this year's meteoric rise in gold prices. They include:

Supply and demand

Gold is a finite commodity. There is only so much of it to be mined, and once we've mined it all, there's no more to be had. As a result, increased demand for gold drives the price up.

Gold has always been in demand since it has a wide range of uses in everything from jewelry to electrical components. But it's become an increasingly popular investment in recent years for the reasons listed above, resulting in the sky-high prices we've seen lately.

Economic uncertainty

The past few years have been a tough time economically. The global and national economies are still reeling from the effects of the pandemic, which led to everything from job layoffs to business closures. Recent bank failures compounded consumer fears about the safety of their money.

When the economy is struggling, investors lose faith in traditional assets like stocks and bonds and turn to gold as a safe haven, causing increased demand and subsequent price increases. For example, Reuters reported a rise in gold prices after the Fed predicted a recession in its March minutes. Gold prices also rose in six of the eight largest stock market crashes of the past 40 years, according to GoldSilver.

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Inflation

Inflation has been a persistent thorn in consumers' sides over the last few years. Core inflation hit 8.5% in March, the highest it's been in 40 years. Currently, it stands at around 5%, still well above the Fed's target rate of 2%. As inflation increases the price of goods and services, the purchasing power of the dollar falls, and investors seek out ways to protect their wealth.

Gold has long been considered a reliable hedge against inflation. As one of the oldest forms of currency, its value has historically remained stable despite market downturns. As a result, when the U.S. dollar is weak, gold is seen as particularly valuable, and this value is reflected in higher prices. 

For example, amidst the inflation of the 1970s to the 1980s, gold prices shot up from $35 per share to a whopping $850 per share, according to NASDAQ.

The bottom line

This year's surge in gold prices reflects investors' faith in the precious metal when the economy is on shaky ground. But gold is a smart investment in any economy and gold prices are only one factor to consider when deciding whether you should invest. That said, gold is best viewed as a long-term investment. Its ability to ride out economic turbulence makes it a valuable addition to any portfolio when held over many years. So, wherever prices go in the future, investing in gold now can be a worthwhile decision.