Since the 70s, financial markets have followed relatively predictable patterns. One of the well-known relationships was the inverse correlation between gold and : when rates went up, gold usually fell, and when rates declined, gold tended to rise. Government bonds were also considered reliable safe-haven assets that could protect capital during periods of market stress.
However, the current macro environment is starting to disrupt the usual relationships. Market behaviour has become so unpredictable that gold continues to rise despite elevated rates, even though it should have fallen. At the same time, confidence in government bonds has become much weaker.
As a result, gold is becoming one of the main tools investors use to protect their capital in uncertain times.
The Breakdown of the Classic Correlation
, the precious metal that has always lured investors, had a unique relationship with interest rates. When rates were low, they yielded little and didn’t generate additional profits. Think of a deposit that pays barely 1% per year — it’s too little, and inflation eats even this one per cent. In this context, gold was much more attractive, as it didn’t lose value because of inflation.
However, the situation used to change when interest rates were high. When an investment could bring, let’s say, 10% a year, holding gold suddenly becomes less profitable. This is called opportunity cost: when holding gold, investors lose the profits that could have been made by holding money elsewhere.
For a long time, this logic explained gold’s behaviour quite well. When interest rates rose, gold weakened, and when rates declined, the metal tended to rise. But today this correlation seems to be fading away. Despite the current rates being quite high and the Fed not rushing to lower them from 3.50-3.75%, gold is still rising and hitting one record after another. Why so, if it has to fall, according to the model?
The thing is, in the current conditions, with so many so-called black swan events, investors are no longer evaluating gold only through the lens of profits. Instead, they are assessing its stability and the opportunity to preserve investments when everything falls apart. And the yellow metal has proved that, despite uncertainty, it can rise and protect investors’ capital.
Can Gold Hit $6,000?
When long-standing patterns begin to break down, price forecasts that once sounded shocking become more tangible. This is exactly the case of gold reaching $6,000 shortly. At first glance, the market might seem overheated, as many say; however, when wars break out in a few days, the price is more real than we might think.
This time, the US-Iran conflict is a perfect example of why gold is rising. When geopolitics escalate, scared investors seek shelter in the yellow metal, which is why it grows. The day the escalation started, gold had already climbed to almost $5,400, and it is highly probable that it will continue to rise and test even $6,000 in the near future. In any case, we have to observe, because the escalation can end shortly.
Even if the war ends tomorrow, gold will still increase in price, but in relative terms. As the dollar began to decline due to the weakness of the American economy, gold only became more expensive against its background. Add to that the rapidly growing US debt that has already surpassed $38 trillion, and $6,000 for an ounce of gold seems not that overrated.
The gold price will also be pushed by central banks’ buying. They will continue to purchase gold anyway, even though it is getting more expensive. This is especially true for countries that have traditionally shown a high interest in gold, for example, countries from the Middle East, as well as India.
According to the latest data, in November last year, central banks across the world bought 45 thousand tons of gold. Although the volume of purchases decreased slightly compared to the last period, it remained at a high level compared to the previous months of last year.
Silver Is Not a Safe Haven
When it comes to protecting assets, investors often bring up as well. But the thing is, if gold has historically served as an anchor during periods of uncertainty, silver plays a very different role.
Unlike gold, the white metal is widely used in infrastructure, which is why its performance is closely linked to the state of the economy. When it’s growing, silver rises, but it doesn’t preserve capital when things go wrong. Given that its price has jumped to $89 per ounce, we can say that despite the geopolitical uncertainty, the economy is set to grow. Much like gold, it will also grow in relative terms, compared to the dollar and lower US Treasury yields.
Silver also has an excellent ability to conduct electricity and heat. This makes the white metal one of the most important sources, essential for electronics, solar energy, and healthcare. The growing focus on renewable energy, especially solar panels, has also boosted silver demand worldwide. With the increasing number of electric vehicles in the world, silver will see more and more growth in the future.
Moreover, silver price increases against economic expectations of the market, as everyone is waiting for another cut for the Fed in the second half of the year. There is a macroeconomic tendency: when rates decline, economic activity increases, and silver is widely used in industries such as automotive and manufacturing. It is also in a deficit itself, so the more demand for industrial purposes rises, the more the silver price grows.
Short Volatility Is a Part of Long-Term Growth
However, none of this means gold or silver will rise in a straight line. That means metals will keep rising, but corrections are normal in such accumulation. For example, a few days after the war started, the prices declined from $5,400 to $5,200. But it’s not a kind of a sign of a global reversal here yet. And the scale of the current pullback, to be honest, is not even relevant to seriously discuss. They are comparatively small, and most importantly, short-term.
The rise in gold will continue to be steady because its fundamental causes, such as geopolitical uncertainty and central bank policies, have not gone away. While remembering the lowering index of the , the certainty that gold will keep growing only increases. From this point of view, there is no reason to revise bullish forecasts for gold, so its $6,000 mark is just around the corner.
