The record high price of gold is forecast to be a shot in the arm for Australia’s minerals industries as well as the wider economy.
This week, the price of the precious metal has surpassed the $US4000 ($6071) mark for the first time, experiencing a surge of over 50 percent in recent months.
The spot gold price continued to rise in the US on Wednesday (Thursday AEST), hitting $US4044.05 an ounce in late trading.
Gold is regarded as an ultra defensive investment choice during periods of economic turbulence and inflation worries.
The Australian government is forecasting record prices will help offset a dip in mining profits.
Analyses from the Department of Industry, Science and Resources suggest that high prices and increasing export volumes will elevate gold earnings to $60 billion in the financial year 2025-26.
This will partly offset the impact of weaker-than-expected LNG prices this financial year.
Madeleine King, the Minister for Resources, remarked that gold and essential minerals like lithium will help buffer the resources industry against declining prices of other commodities.
“The discovery of gold helped build this nation and gold mining is still creating wealth and jobs for our economy today,” she said.
Gold and stocks both moving higher
This year’s rise in the precious metal is unprecedented, outstripping past turbulent moments such as the aftermath of the September 11 attacks, the 2008 financial crisis, and even the pandemic.
Gold is up 54 per cent so far this year, on track for its best year since 1979, according to FactSet.
Keep in mind that was a time when the US was grappling with double-digit inflation and a full-blown energy crisis.
What’s unusual about today’s gold spike is that it’s coming in tandem with a booming US stock market.
Driven by the allure of artificial intelligence, investors have heavily invested in a select few major tech firms, which are driving the entire stock market upward.
“The stock market and gold are moving to the rhythm of very distinct drummers,” stated David Kotok, co-founder of the investment firm Cumberland Advisors.
The gold rally reflects unease about the economy and lingering concerns about inflation, which has been stuck above the US Federal Reserve’s 2 per cent target for the past four and a half years.
The US has hiked tariffs to the highest level since the Great Depression, and Japan’s incoming prime minister has endorsed lower interest rates and higher borrowing.
Gold has surged 5 per cent so far this month as the US government shutdown leaves investors and Fed officials in the dark about the state of the economy by derailing major economic reports.
Against this backdrop, investors are piling into an asset that isn’t linked to a single government: gold.
One of the biggest drivers of the rally in gold is the fact that the US dollar is having one of its worst years in decades.
The dollar’s weakness has investors questioning the greenback’s long-held status as a global safe haven.
Central banks around the world are also piling into gold.
This gained traction after Washington and allies punished Russia for its invasion of Ukraine by freezing Moscow’s assets held in the United States.
Those sanctions raised further questions among foreign officials about where to keep their money.
Goldman Sachs told clients this week gold will likely hit $US4900 by the end of next year.
The Wall Street bank cited strong buying from central bankers, retail investors and looming rate cuts from the Fed.
Ken Griffin, the hedge fund billionaire who backed Trump in the last election, told Bloomberg this week it’s “really concerning” that investors are starting to see gold as a safer bet than the US dollar.
