Gold Surges to All-Time Highs as Investors Turn to ETFs Amid Economic Uncertainty

In recent months, gold has reached unprecedented highs, hitting an ATH of $2,788. Buying physical gold is comparatively challenging, entailing inherent risks with storing and keeping it in good condition. To exclude any dangers, investors are increasing their demand for gold ETFs as a more convenient option for investments in yellow metal. At the end of October, gold ETFs saw a record inflow of $3 Billion—it was a major driver for the gold price.

The surge in gold investment demand, particularly through ETFs and OTC channels, reflects a robust appetite among professional investors. The current investment surge is based on continued geopolitical and economic uncertainty. Although consumer demand was not at its best, the recovery of professional flows could mitigate these declines. However, the sustainability of this trend heavily depends on external factors. Let’s discuss them in more detail.

The Fed’s Meeting

The main factor in the growth of gold prices is the meeting of the Federal Reserve System and the rate cut by 25 bps. This event is much more important than current political processes, such as elections, which, despite their importance, do not have such an impact on the gold market. With a high interest rate, investors prefer cash-generating assets to neutralize inflationary risks. However, with a lower rate, gold becomes more attractive, even though there is no cash flow, as it retains and increases value. 

Political Instability

Another important factor is political instability. Investors are especially concerned about tensions in the Middle East region. Conflicts in this area create additional demand for gold, as both governments and professional investors, feeling the threat of a large-scale war, prefer to secure their reserves. Although military action may not begin immediately, political tensions are prompting them to purchase gold to stabilize their assets. 

U.S. Elections

It is commonly thought that Republicans tend to be favorable for gold prices, while Democrats have the opposite effect. So, with Trump's victory, gold investments will feel even better. However, in the current context, other factors also play a significant role. For instance, Trump's victory can also heighten geopolitical tensions, which also provides an extra boost to gold prices. His plans related to migration control, confronting China, and influencing European politics would further support gold as a safe-haven asset.

EU’s Economic Downturn

It is also worth noting that the crisis in the European Union and the decline in Germany's influence as a leading economy are among the other factors influencing gold. EU countries are increasingly considering gold as a necessary tool for their central banks, especially against the weakening position of the European Central Bank. An example is Poland, which is actively building up gold reserves, believing that the ECB may have problems. They show distrust of the stability of the European monetary system, which pushes them to increase their gold reserves.

What will happen to gold in the near future?

Professional investors will continue to buy gold ETFs or other instruments that allow them to secure investments in gold. As I have mentioned, the main driver of gold purchases among the pros is a decrease in interest rates. And while we are in the era of a soft monetary policy, gold will continue to strengthen its position. 

Overall, the resilience of gold investment, strengthened by professional flows and global economic pressures, positions it as a strategic asset. Now, when the rate is cut again, the question will not be “if” gold reaches $3,000 per ounce but “when.” The further effects of the Fed meeting and evolving geopolitical problems will continue to be key events to watch as we move towards the end of 2024 and the beginning of 2025.