Gold achieves historic gains.. Should you invest in it at the present time?

Al-Shoubaki explains, “What we see now is the US Federal Reserve’s intention to begin reducing interest rates during the next few months, with the recent weak economic data in the United States, indicating a decline in the value of the dollar, and thus a rise in the value of gold.”

In addition to the American Central Bank, according to Al-Shoubaki, the European Central Bank also intends to reduce interest rates next June.

Al-Shoubaki points out that “the intention of global central banks to additionally hedge gold, which in turn affects its price.”

He says that many central banks around the world are currently expressing their intention to buy larger quantities of gold, “including the Chinese Central Bank, as a result of the factors I mentioned previously and the possibility of a decline in the price of the dollar.”

Al-Shoubaki told the BBC that how to measure the price of gold, which is a “non-consumable” commodity, differs from that of other commodities.

He adds: “The commodity of gold differs, for example, from oil. When 100 million barrels of oil are produced daily, this quantity is consumed. But gold is considered a stock and is not consumed. Rather, it is kept with people.”

He continues: “The global stock of gold today is estimated at 230 thousand tons, while the global production of gold annually is estimated at 3 thousand tons. Therefore, the one who affects the price of gold is the one who owns it, not the one who produces it.”

He says: “Therefore, gold prices do not depend much on the level of production, as happens in other commodities, but rather depend more on the feelings of gold owners in the world, whether regarding geopolitical risks that urge the acquisition of a safe commodity such as gold, or on other trends such as hedging.” In gold due to economic inflation.

He points out that citizens of many countries hit by economic inflation, such as Egypt currently, resort to hedging with gold, instead of paper currencies, for fear of their money losing its value.

He adds that this “also explains the difference in gold prices from one country to another according to variables, including inflation rates in particular.”

Many Arab countries that have recently witnessed economic turmoil and a decline in the price of their local currency, such as Lebanon and Egypt, for example, have resorted to hedging with gold.

Al-Shoubaki says: “The gold commodity in the Arab countries is no longer, as it was in the past, just ornaments and jewelry that women adorn themselves with as a secondary matter. Rather, it has become for the Arab family a necessary commodity for protection.”

He adds that providers of investment advice “always advise having a share of no less than 20 percent of the investment portfolio for gold, and this percentage may rise in the current circumstances to 40 or 50 percent.”

Al-Shoubaki says that all expectations point to an additional rise in gold prices in the next stage in the short and long terms, and he adds that the existing differences are only related to the extent of the rise in gold prices in futures contracts and in the near future.

He says that the focus should be on “the possibility of cuts in interest rates by the US Federal Reserve, and if these three expected cuts occur, this will certainly raise the price of gold to the range of $2,300 per ounce.”

He points out that “there are those who expect greater gains for the price of gold, reaching $3,000 per ounce, if central banks around the world decide to replace their dollar reserves with additional gold reserves in a large way.” The Central Bank of China, India, and Turkey, in addition to other banks, give Another example of this.

Economist Rami Kiwan told the BBC that he expects an additional rise in gold prices in the long term, for two main reasons.

“The first reason is related to the decline in both exploration and production, which leads to a reduction in supply,” he explains.

Kiwan points out that research conducted by the consultancy company MinX reported a decrease in expenses related to gold discovery activities, by 63 percent, to reach $4.44 billion in 2019 from its highest level ever, which was $11.8 billion in 2012.

He says that one of the reasons for this decline in production is due to “the interest of several exploration companies in switching from gold production or reducing it to a large extent, in exchange for interest in exploration and production of other minerals that are considered essential in the process of green transformation to reduce climate change, such as nickel, lithium, cobalt and other minerals that… It is involved in the production of environmentally friendly technologies.

Kiwan adds that gold mine production only grew by 1 percent during 2022, according to the World Gold Council.

As for the second reason related to the demand side, Kiwan says that “the main purchases of gold were from central banks around the world.”

He believes that “what these dynamics indicate is that the trend of gold prices is very likely to be upward in the medium and long term, regardless of the fluctuations that may occur in the short term.”

He adds, “Central banks’ net purchases of gold amounted to 1,037 tons in 2023. This was the second year in a row that central banks added more than 1,000 tons to their total reserves.”

He says: “I do not expect them to reverse this course any time soon, especially with some countries trying to reduce their dependence on the US dollar.”