The gold price quickly reached a new record high on Monday morning. In just one year, the price has risen by 50 percent. A kilo of gold now costs almost €110,000. What does this say about the economy, and will gold still be affordable in the future? Johan de Ruiter, director of the Goudwisselkantoor (Gold Exchange Office), explains.
Never before has so much been paid for the precious metal, and the gold price has never risen so rapidly. Halfway through last month, the gold price reached a record high of over $3,680 per troy ounce (31.1 grams). A troy ounce now costs almost $4,000 (over €3,400).
The gold price has been rising for some time. This is largely due to uncertainty in global financial markets. Gold is seen as a safe haven in times of uncertainty. Many central banks, such as those of China and India, have recently purchased large quantities of gold.
Johan de Ruiter: "It wasn't long ago that the gold price was €100,000 per kilo, but now we're almost at €110,000. In just a week, gold has increased in value by ten percent. The speed at which the price is rising is truly incredible."
This is due to a combination of circumstances. The stock price continues to rise, while at the same time the economic outlook is not very positive. The US central bank's interest rate is falling, making it more attractive to buy gold. China and India continue to buy gold in large quantities, which continues to drive up the price.
The US government shutdown last week caused additional economic uncertainty and gave the gold market an extra boost. For the first time in seven years, the government was partially shut down on October 1st because Republicans and Democrats failed to reach an agreement on funding government services. Thousands of government employees are at home without pay, which has major consequences for American businesses and the economy.
Money loses value, but gold doesn't. Many private individuals see it as a safe investment. I always compare it to a sea level: the line rises, but in between, there's an ebb and flow. Right now, there's a high tide. Eventually, the line will dip again a bit, but ultimately, it will continue to rise.
You see that more and more individuals are finding it less interesting to leave money in their bank accounts and are investing in gold. It's striking that people with an average salary are now also buying some gold. Previously, it was only wealthy Dutch people who did. People want to secure their assets. This idea is reinforced by central banks, which are buying gold en masse. This shows that central banks have more confidence in gold than in euros.
"Absolutely. The price is twice as high as it was five years ago and ten percent higher than a week ago. Anyone hesitant to sell gold is being persuaded. Old jewelry that people don't wear anyway is being sold."
The speed at which the gold price is currently rising is quite worrying. This is a signal that the economy is really not doing well; there's too much uncertainty. I expect we'll reach $4,000 per troy ounce this week. That's faster than I expected. We might even reach €125,000 per kilo by the end of this year. The speed of the price increase will eventually slow down, but not for now.
People generally don't buy expensive jewelry very often. It's usually for a special occasion. I think people will continue to buy gold jewelry, whether they pay €800 or €300. But jewelry these days contains less gold. It's often hollow and has a lower gold content. That drives down the price. Silver is also selling increasingly well. So in that respect, the jewelry industry isn't directly affected by the high gold price.
