Gold has long been considered a haven for capital preservation, and its value is sensitive to changes in the global economy. At the end of 2024, the price of gold (XAU/USD quote) demonstrated impressive growth: by approximately 27-28% over the year, reaching an all-time high of about $2,790 per troy ounce in October. This rise reflects the combined influence of several global factors.
Let’s discuss in more detail the key factors that influence the price of gold: interest rates, inflation, the dollar exchange rate, geopolitics, central bank actions, and investment demand. Each has its own impact on the value of the precious metal.
One of the main drivers of gold prices is interest rates. There is usually an inverse relationship between rates and gold: when interest rates rise, gold becomes less attractive because the metal does not generate interest income. As Reuters notes, higher rates reduce incentives to hold a “non-income-generating” asset like gold – investors prefer to receive income from bonds or deposits. Conversely, when rates fall or are low, the opportunity cost of owning gold decreases, making the metal more attractive for investment.
In 2022–2023, many central banks raised rates sharply, holding back gold prices. However, by the end of 2024, the situation had changed: inflationary pressures began to ease, and expectations of monetary easing emerged. These expectations of rate cuts were one of the factors that spurred gold demand. In 2024, the US Federal Reserve switched from tightening policy to its first rate cut, giving the gold market upward momentum. Thus, the outlook for interest rates directly affects the price of gold: a rate cut, or even a hint of one, can trigger an increase in the cost of the precious metal.
Inflation is another critical factor for the gold market. Gold is traditionally considered a hedge against the depreciation of money when prices rise. During periods of high inflation, investors and savers turn to gold, seeking to preserve the purchasing power of their capital. A prime example is the past few years.
After the pandemic, inflation in many countries jumped to the highest levels in decades, which caused increased interest in gold from private investors and institutions. Even when consumer price growth began to slow, concerns about persistently high inflation remained, fueling demand for precious metals. According to the World Gold Council, inflation concerns were one of the drivers of investment demand for gold in 2024.
In 2024, with inflation still above target, gold acted as a hedge against inflation. Investors took into account that real interest rates (inflation-adjusted rates) remained low and sometimes pessimistic, making gold a more viable investment. Thus, rising inflation usually leads to higher gold prices until central banks aggressively raise rates to curb it.
Since the global gold price is denominated mainly in US dollars (XAU/USD), the value of gold largely depends on the exchange rate of the American currency. The rule of inverse correlation applies here: a strong dollar puts pressure on the price of gold, while a weak dollar, on the contrary, supports it.
When the US dollar strengthens, gold becomes more expensive for holders of other currencies, and their demand decreases – as a result, the global price (in dollars) can fall. Conversely, a weakening dollar makes gold more accessible outside the US, stimulating demand. Reuters notes that a fall in the dollar index makes gold cheaper for buyers using other currencies. This is exactly the effect observed in the second half of 2024: the USD index fell slightly from its peak values, creating a favorable background for the growth of gold quotes.
For example, in early 2025, amid trade concerns between the United States and its partners, the dollar fell, bolstering the gold gain. In general, traders keep an eye on the XAU to USD exchange rate.
Geopolitics and global uncertainty are powerful catalysts for gold demand. There have been several clear examples of how geopolitical events have impacted the price of gold:
Military conflicts. The escalation in Eastern Europe (Russia-Ukraine conflict) that began in 2022 led to a surge in demand for gold. Attacks on infrastructure, escalating hostilities, and associated risks drove part of the rise in gold prices in 2024.
Trade wars and sanctions. Heated trade disputes between major economies also push gold prices higher. For example, the introduction of new US tariffs and China’s retaliatory measures in early 2025 have increased uncertainty in the markets. Against this backdrop, demand for haven assets has increased, and gold has risen to record levels around $2,950.
In addition, any global shocks (financial crises, unforeseen events like pandemics) strengthen gold’s status as a universal insurance asset. Geopolitical factors are difficult to predict, but their impact on the gold market is clear: in times of trouble, the metal noticeably gains in price.
Central bank policies and operations have a dual impact on the gold market. On the one hand, central bank decisions on interest rates and money supply affect the investment attractiveness of gold. On the other hand, central banks themselves are major market participants as buyers and sellers of gold for their gold and foreign exchange reserves. In the last decade, central banks around the world have become net buyers of gold, creating additional strong demand.
Central banks continued to build up their gold reserves in 2024. According to the WGC, total official purchases exceeded 1,000 tonnes for the third year. The most noticeable contributor was the National Bank of Poland, which purchased around 90 tonnes of gold during the year. Many developing countries, from Asia to the Middle East, are accumulating gold eagerly.
Many central banks view gold as a hedge against currency risks and geopolitical turmoil in the international financial system. Indeed, gold helps diversify reserves and reduce dependence on the US dollar. Unsurprisingly, 2024 has already been the 15th consecutive year of net gold purchases by global central banks.
In addition to central banks, private and institutional investors play a key role in driving investment demand for gold. This includes demand from investment funds (through exchange-traded funds, or ETFs), banks, hedge funds, and individuals buying bullion and coins. Investment demand is closely related to the factors stated above: expectations about rates, inflation, the dollar, and geopolitics directly influence investors’ appetite for gold.
In 2024, investment demand for gold increased significantly. According to the World Gold Council, investment purchases amounted to about 1,180 tons for the year – 25% more than in 2023. It is the highest figure in the last four years and a clear signal of a reversal in sentiment. Institutional investors made the main contribution: after several years of outflow, they began directing funds into gold ETFs again, especially in the second half of 2024.
Why are investors increasing their gold investments? The precious metal performs several functions at once: it is both an insurance asset in case of a crisis and a means of portfolio diversification. The price of gold is formed under the combined influence of macroeconomic and political factors. Many market participants have realized the benefits of including gold in an investment portfolio to reduce risks.
The World Gold Council expects central banks to remain large buyers in 2025, while ETF investors will increase their presence, especially if interest rates fall amid a volatile economy. Geopolitical and macroeconomic uncertainty will continue to be a hot topic, driving demand for gold as a store of value and a hedge against risk. Some analysts even predict that if current trends continue, the price of gold could break the $3,000 mark this year.
Trading in financial markets has evolved significantly, with automated trading for beginners becoming more accessible…
Do you have an MP4 video file but only want the audio track? Perhaps you'd…
No one can neglect the importance of financial well-being. It is not just about earning…
Have you ever tried to DM someone on Instagram and received the message, Not everyone…
If you are an active Snapchat user you might have seen a pop-that ‘shared a…
When you scroll through social media, you often see abbreviations like PC. Many people guess…