Gold Standard: Will the metal move higher in 2025?

 Gold, for many, represents the best store of value in uncertain times. The World Gold Council indicates that prices for the metal are likely to climb “modestly” in 2025. Analysts at msn.com explain, “If the economy performs according to market-consensus expectations gold prices should rise at a more modest rate than this year. 

"Gold has potential for upside if central-bank demand proves stronger-than-expected or if a rapid financial deterioration drives safe-haven demand—though a reversal of the interest rate cutting cycle would bring challenges.”




In 2024, the precious metal outperformed itself over a ten year timeline. Prices rose to record highs peaking at US$2,826.30 an ounce in late October.

Total gold demand in the third quarter surpassed US $100 billion for the first time although there was a short sell-off following Donald Trump’s victory in the U.S. presidential election in early November.

Prices today are still sit up more than 25 per cent in the year-to-date, the analysts state. Driving demand also are central-bank purchases and safe-haven demand against market volatility and geopolitical risks.

The market is proceeding in step, as expected, however we want to remind you of how many times government action has affected the value of gold held and also silver.

As chronicled at Moneymetals.com, in 1933 U.S. President Franklyn D. Roosevelt (FDR) signed Executive Order 6102, forbidding individuals and most companies from holding gold coins, gold bullion, gold bars, gold ingots, and gold certificates.

“ FDR required all of those who did possess these gold items to sell them to the US government for $20.67 per Troy ounce in fiat currency. This order was made possible via the Trading with the Enemy Act of 1917, and the Emergency Banking Act on March 9, 1933,” moneymetals outlines.

1934 in the Silver Purchase Act of 1934, U.S. President Roosevelt issued Executive Order 6814 to confiscate and nationalize silver, outlawing private ownership of quantities of more than 500 Troy ounces.

Then in 1934 the Gold Reserve Act of 1934 was established and increased the price of a Troy ounce of gold to $35. Devalued the gold dollar up to 40 per cent. This made silver to gold ratio 35:1.

In 1945 The Bretton Woods Agreement and System was agreed upon in 1944 and ratified in 1945. This established the U.S. dollar as the international standard for pegging other currencies, while the U.S. was to peg against gold. This agreement established the International Monetary Fund (IMF) and the World Bank. The Bretton Woods System lasted from 1945 to mostly the early 1970s.

In 1970 CE the Economic Stabilization Act of 1970 began the process of making the US dollar a strictly fiat currency . In 1971 the terminated all gold sales or purchases, and the conversion of foreign currencies into gold.

In 1999 the Washington Agreement on Gold limits the amount of gold that central banks can sell, helping to stabilize prices.

In general gold is seen as the best store of value, maintaining its value over time. It is seen as a hedge against economic uncertainty, protecting t wealth during hard economic times. Ownership of the metal also contributes to portfolio diversification: Gold helps diversify investment portfolios. Gold retains value during political and economic uncertainty.

The fact that governments worldwide hold gold as a foreign exchange reserve highlights the importance of the metal. Throughout history, many governments used gold to back their currencies. 

However, by one stroke of the pen, government officials can change value as seen in the examples above. Otherwise, the market dynamics affecting the price of gold are fairly predictable.

Forbes outlines that several factors can impact the correlation between the dollar and gold. “During recessions or periods of economic uncertainty, both rise together as investors seek safe-haven assets. There are also geopolitical events where international tensions can invite sentiment for both, potentially causing them to move in tandem. Wars in the Middle East and Ukraine have driven up the price of gold.

“There is also monetary policy: Federal Reserve decisions on interest rates can significantly impact both assets. Higher rates typically strengthen the dollar but may decrease gold’s attractiveness as a non-yielding asset. Finally, high inflation expectations may weaken the dollar but boost gold prices, as the precious metal is often seen as an inflation hedge,” Forbes states.

*Commentary on this blog does not constitute financial advice. Speak to your broker or investment advisor for tips on adding gold to your portfolio.

 

Caribbean Money Daily

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