The gold price is influenced by many variables such as the US dollar exchange rate, real yields, supply and demand dynamics and general sentiment. Gold tends to react asymmetrically to real yields supported by strong central bank purchases.

Gold forecasts

Peak real yields, heightened geopolitical uncertainty, strong central bank demand and strong retail jewellery demand make us optimistic about gold.

Long-term investors should view gold investments as a short-term hedge against risk events, a reliable long-term store of value and a portfolio risk diversifier.

Attractive Yields

For centuries, gold has been a sought-after commodity and a popular component of investment portfolios. Over the past 20 years, the metal has delivered attractive long-term returns, rising by 8% per annum. However, its value has been subject to significant fluctuations, with prices falling by around 40% between 2011 and 2015 before fully recovering in 2020. On 11 March 2024, the price of the metal passed the 2,180 dollars per ounce mark, reaching a new all-time high.

What affects the price of gold

The price of gold is influenced by macro factors and supply and demand dynamics. Understanding its distinctive features and advantages is crucial for investors looking to build a portfolio that can withstand fluctuations. How gold prices have changed over the past few years and how investing in gold at an appropriate size can add value to a portfolio from an asset allocation perspective is the focus of this article.

Gold prices are often negatively correlated with the value of the U.S. dollar because the price of the metal is expressed in dollars. Gold prices fall when the dollar weakens, making it more accessible to those who own other currencies. When the dollar strengthens, gold tends to weaken. However, there are long periods when this relationship breaks down. For example, in 2012-2013, gold lost 18% of its value when the dollar was stable and rose by only 1%.


Looking ahead, we believe that the current dollar situation should be favourable for gold prices. A significant rise in 2022 and a sustained decline in 2023 has resulted in the dollar currently trading 10-15% above its intrinsic value, as suggested by the interest rate differential and its own long-term average. In the medium term, if the dollar returns to the mean, it will eventually be cancelled out. In the short term, the dollar could be supported by cyclical growth in the US outperforming other major economies. Strengthening from current levels is likely to be limited. The US economy and interest rates are expected to catch up with the rest of the world as wage inflation falls and the Federal Reserve begins to cut interest rates, probably in the second half of the year.

Real yields have changed

There is an inverse relationship between the price of gold and real yields (i.e., interest rates adjusted for inflation). Real yields can be thought of as the opportunity cost of owning gold because it does not earn interest income. Interest-earning assets such as cash and fixed income securities become more attractive when real yields fall. The rise in gold prices since the 1990s is explained by this inverse relationship as real yields have had a downward trajectory. Global quantitative easing and zero interest rate policies have led to a sharp decline in yields during major gold rallies, such as in 2008-2012 and 2019-2021.

Over the past two years, there has been a marked divergence between the dynamics of gold prices and real interest rates. Stubbornly rising inflation and worsening global supply disruptions have set the stage for an aggressive Federal Reserve policy tightening cycle in early 2022. Real yields have risen from deeply negative territory to their highest levels since the 2008 global financial crisis, following an aggressive rise from deeply negative territory.