Gold played a crucial role as a means of exchange and currency for thousands of years. But as the “gold standard” collapsed in the early 1970s, the U.S dollar became the world’s global currency. Nonetheless, gold’s unique intrinsic properties make it a valuable financial asset.

How has Gold performed?

In 2024, the value of gold rose by more than 18%, reaching a record high of $2450 an ounce. The reasons behind are not always straightforward, as factors such as global economic conditions, market sentiment and geopolitical events have all influenced gold prices.

Safe Haven Asset

In times of geopolitical and economic uncertainty, investors and Central Banks flock to gold as a safe haven asset. Year-on-year, The People’s Bank of China’s gold reserves hit a record 2,264 tonnes (+7%) in June 2024. Similarly, the value of gold reserves in dollars held by the U.S Federal Reserve increased by more than 21%, reaching $609 billion.

Diversification

Investors see gold as a tool for diversification due to its low correlation with asset classes like equities and bonds. During the 2008 Global Financial Crisis (GFC), gold prices surged by 26%. During the COVID-19 pandemic, gold prices again increased significantly, reaching a peak of over $2,000 per ounce in 2020.

Inflation Hedge

Gold is widely regarded as an effective hedge against inflation. During the high inflation of the 1970s, gold prices soared from $35 per ounce in 1971 to over $600 per ounce by 1980. Similarly, following the GFC and during the COVID-19 pandemic, gold prices increased significantly in response to inflation concerns.