In recent weeks, the demand for gold has surged, pushing the prices close to record highsAs the world grapples with rising geopolitical tensions and economic uncertainty, investors have increasingly turned to gold as a safe haven assetIn fact, on February 21, the price of spot gold reached new heights, almost touching the $3,000 per ounce mark for the first time in historyThis achievement marked the tenth record high for gold in the year, and prices have shown a remarkable upward trajectory over the past several weeks.

On that particular Friday, gold continued to trade around $2,941.06 per ounce, maintaining the gains from Thursday, when it had soared to $2,954.72. This upward trend is indicative of a larger pattern that has seen gold prices rise approximately 12% since the beginning of the year, reflecting growing investor confidence in gold's long-term potential amidst unpredictable market conditions.

Compounding this trend was a notable increase in gold leasing rates on the London exchange, where the rates spiked from near-zero levels to an astonishing 4.7% for one-month gold leases, and even hitting 12% for overnight leasesConcurrently, prices in New York for gold futures topped $2,973 per ounce, highlighting a significant bifurcation in pricing across major financial markets.

Besides rising prices, concerns have intensified regarding U.S. trade policies and geopolitical risks, further amplifying the demand for goldThe increases in prices earlier in the year can be attributed to various interconnected factors, including a decrease in the value of the U.S. dollar and lower U.STreasury yieldsRecent reports indicated an unexpected rise in unemployment claims, which underscored these economic concernsFor instance, for the week ending February 15, the number of initial jobless claims increased by 5,000, rising above market expectations, leading to additional worries about the strength of the labor marketMoreover, the Philadelphia Federal Reserve's manufacturing index saw a notable decline, suggesting that business activity was slowing significantly, which indeed pressured the dollar.

Experts have pointed to the prevailing economic conditions, stating that the slowing momentum in economic growth has led to diminished support for the dollar

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Convera's global macro strategist, Kavitha Chetty, noted that while the Federal Reserve's hawkish monetary policy could somewhat bolster the dollar, the prospect of pausing interest rate hikes has already been fully anticipatedThe dollar index has responded negatively, experiencing a drop of 0.78% and closing at the lowest level since December.

As the situation evolved, central bank commentary reflected broader concerns about the state of the economyFor example, the StLouis Federal Reserve's vice president, MrMusalem, highlighted potential risks related to inflation expectations and the challenges of stagflation, posing difficult choices for the FedThe Chicago Fed's Goolsbee also suggested that indicators of inflation targeting were not as alarming as previously thoughtThis sentiment has led many to believe that gold stays appealing amid these uncertainties.

Additionally, there are underlying factors bolstering this demand for goldConcerns around excessive U.S. government spending and increasing purchases from central banks, alongside a growing array of investment vehicles enabling individual investors to buy gold, have solidified gold’s position in the marketBlue Line Futures senior market strategist Bill Baruch remarked that the ongoing purchases from central banks contribute significantly to price support, with exchange-traded funds (ETFs) also seeing significant inflows over consecutive days.

As surging prices capture attention, analysts have been adjusting half-yearly and yearly forecasts for goldBoth UBS and Goldman Sachs have revised their expectations upward this weekAccording to UBS analyst TeVas, uncertainties related to trade policies and central bank buying have driven prices above their long-standing forecasts of $2,850 per ounceHe expressed confidence that given the increased volatility and the global monetary easing cycle expected to prolong, along with strong demand from both investors and central banks, gold will remain well supported throughout the year.

Geopolitical factors also continue to add complexity, with TeVas projecting that as conditions remain unpredictable, interest in gold will likely grow

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In summarizing the Federal Reserve's recent actions—maintaining interest rates amidst high inflation and a strong labor market—he suggested that the continued room for potential reductions in rates will benefit gold investments, as lower rates diminish the opportunity cost for holding non-yielding assets.

While the central banks' robust demand for gold refined its attractiveness further, a report from the World Gold Council indicated that total global demand for gold reached 1,277 tons in the fourth quarter of 2024—a nearly 12% increase compared to the same period in 2023, fueled in large part by central banksTeVas also signaled that the ongoing trends of diversification and de-dollarization are likely to keep driving demand for gold among central banks in the coming yearsAdditional factors, including expanding federal deficits and a deteriorating long-term debt outlook in the U.S., further reinforce the allure of gold in the context of dollar depreciation.

Finally, with observations from top analysts emphasizing the role of gold in portfolio diversification and hedging against uncertainty, it has become crucial for investors to allocate a substantial portion of their assets to gold, pegging recommendations close to 5% within balanced portfoliosOn a specific price trajectory, UBS has now raised its gold price forecast for the next twelve months to an impressive $3,000 per ounce, projecting a peak at $3,200 later in the year, before settling back down towards $3,000 by the end of 2025.

Goldman Sachs, similarly, has adjusted its forecasts for the year-end to $3,100 per ounce from $2,890, emphasizing that central bank purchases will serve as a key driving forceThey estimate that stronger structural demands from central banks may facilitate a 9% increase in gold prices by year’s endThey also hinted that if uncertainties persist, including trade concerns, it is plausible the speculative positions could even see gold prices soar to $3,300 before the year's close.

While there are scenarios where diminished purchasing from central banks might lead to lower prices, the sentiment persists that gold's trajectory is likely to remain upward

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