Why the Gold Price Keeps Rising

Why does the gold price go up? Let me tell you the main reason the gold price goes up.

All the gold dug up in the world is a lump of metal: 20.4m by 20.4m by 20.4m. That’s all the gold ever dug up in the world. It grows about 2% per annum with production, and it shrinks about 2% per annum with consumption in things like electronics.

So you’ve got this inert lump of metal, 20.4m square, sitting there — earning nothing, doing nothing, looking pretty if it can — and a whole load of people are running around it deciding what the price is.

In the last couple of decades, two things have happened. One is exchange traded funds came along and bought. If it bought three metres by three metres by three metres, it completely changed the supply dynamics of this inert piece of metal.

It’s an amazing thought that if you could create an exchange traded fund backed by physical gold and start selling it, then as you sell you’ve got to find the gold. So you go into this inert, stable 20.4m cube and start buying chunks of it so that people invest in gold. It was self-fulfilling really. When exchange traded funds started in 2003, people started buying gold as an investment.

It shoved demand up. Consequently, the gold price went from between $200 and $500 an ounce to $3,500. Now it’s 20 years later and it’s still going on. Exchange traded funds are buying gold, and when gold has a run it’s a squeezy commodity to get hold of. That is backed by physical gold. So gold is being squeezed — and squeezed again.

Add on top of that currency. If you’ve got an inert piece of metal and everyone’s running around it wondering what price it should be, and it’s priced in US dollars, then because of a global financial crisis you print twice as many US dollars, the US dollar is worth half as much.

For one thing it was the GFC, then Covid for another. Print twice as many US dollars and the currency is worth half as much. So the price of gold, and anything else priced in US dollars, doubles — not because gold is worth any more, but because the currency is worth less. That’s what’s driven the gold price as well.

One of the biggest drivers for the gold price is when the US dollar goes down. You’ll find the gold price goes up.

At the moment the US has a lot of debt. That weakens the currency. A currency is really a reflection of how strong an economy is. If they put tariffs in and it slows the US economy down, the US dollar goes down. If they start to cut interest rates, which it looks like they’re going to, the currency goes down because it doesn’t yield as much.

All this is pushing towards a weaker US dollar. And a weaker US dollar is going to cause the gold price to go up again.

So combined with the risk of “The Big One”, a falling US dollar, exchange traded fund buying — the gold price goes up. And that’s what’s going on at the moment.