Source: Nikkei Money DIGITAL, Nikkei Business Publications, Inc.
The chart showing historical gold prices indicates that significant rises in international gold prices were seen in the following five phrases. When events like this combine to create a state of urgency, gold prices are likely to increase.
- When the first oil crisis occurred from 1973 to 1974
- When the situation in the Middle East become more serious, driven by risks such as the second oil crisis from 1979 to 1980
- When Mexico’s debt crisis occurred from 1982 to 1983, followed by financial instability in Brazil
- When the US dollar rapidly depreciated in 1985
- When global financial instability was triggered by the subprime mortgage crisis that emerged in 2007
The price of gold tends to rise when the global economy experiences turmoil as a result of heightened international tensions sparked by wars, surging oil prices, inflation, declining real interest rates, and growing concern about global finances. Given these characteristics, the yellow metal is often described as “a safe haven in perilous times.”
Starting the late 1990s, gold consistently remained below the $300 level. There are several reasons for this price weakness.
1. During Asia’s currency crisis, several Asian currencies weakened dramatically against the US dollar. During the currency crisis, Asian countries such as South Korea sold gold to acquire foreign currency. This selloff led to the collapse of the gold supply and demand balance.
2, In a faltering global economy, the US economy was experiencing solid growth, causing investment funds to flow into the US financial markets. This market environment discouraged an inflow of funds into the gold market, causing gold prices to stall.
The weaker gold prices drove some central banks, major bullion holders such as the central banks of Belgium and Holland, to sell their gold. Consequently, fears of a sell-off spread throughout the entire gold market.
However, the Washington Accord in September 1999, which called for a restriction on the sale and lending of gold by major central banks, halted the fall in gold prices.
The latest trend shows gold prices continuing to hit new record highs due to brisk demand for jewelry and investment in East Asia and Middle East, reflecting growing anxiety about the U.S. dollar, the world’s key currency.