The exceptionally strong demand for gold by the Chinese central bank and the private sector in the past two years has pushed up the price of gold. It breaks records and long ago crossed the magical threshold of two thousand dollars per ounce. According to experts, this is just the beginning.
Estimating the development of the price of gold is not an easy task. What is certain is that if the demand increases, the price of the precious metal also increases. China has dramatically influenced this in recent years. “Massive Chinese gold purchases over the past two years have fundamentally changed the gold market. The People’s Bank of China bought a record 735 tons of gold in 2023, and could currently hold over five thousand tons of gold. In addition, when the real estate sector began to collapse in China in late 2021, the attention of private investors turned to the yellow metal. China’s private sector net gold imports totaled 1,411 tonnes in 2023 and a whopping 228 tonnes in January of this year alone,” he pointed out Roman Pilíšekeconomist and co-founder of the company Gold reserves.
The main reason for the rise in gold prices is strong demand from central banks. The largest buyers of the most expensive metal include Russia, India and Turkey, with China taking the top spot. “Gold is a store of value in times of economic and political uncertainty. Of course, central banks are aware of this and are constantly increasing their gold reserves, especially in view of the freezing of Russian foreign exchange reserves. It is the Chinese central bank that continues its intensive purchases of the yellow metal this year as well. In the last week of March, during the morning time of the London fixing, an increase in the price of gold by one percent within one hour was visible, otherwise unusual at this time. It’s clear that the big buyers aren’t too concerned with the all-time high price,” said Roman Pilíšek.
Uncertainty about the development of inflation and foreign policy is rising, which is also driving up the price of gold. “The value of gold has been rising with small fluctuations since the end of 2019, when the coronavirus pandemic began. Subsequently, the price of gold was driven up by the conflict in Ukraine and subsequent high inflation. Now we have the events in Israel, to which gold responds by rising again. In the autumn, the presidential elections in the USA will take place, which may shake up foreign policy and again significantly increase the price of gold. In addition, the US national debt is growing unstoppably, indicating that the fight against rising inflation is far from over,” the economist listed.
According to Roman Pilíšek, the price of gold develops in eight-year cycles. At the end of it, it could exceed 70 thousand crowns. “We are based on long-term data since 1973, when the first eight-year cycle began. We are currently in roughly the second year of the seventh cycle, when at least during the first half of the cycle, except for small fluctuations, the price of gold rises. In the last 14 months alone, the stock exchange price of an ounce of gold rose from 40,000 to over 53,000 crowns. The Czech crown thus lost 33 percent of its value. In my opinion, an ounce of gold will culminate in a price of at least 70-75,000 crowns between 2027 and 2028, which is another +40 percent. From a long-term perspective, the current price of gold and its rocket growth are only just beginning,concluded Roman Pilíšek.
