Gold Price Surges Despite Interest Rate Hikes

The price of gold has dropped by nearly 30% since January, falling from $5596 to below $4000 in June. Retail investors are selling, ETFs are experiencing redemptions, and analysts are slashing their target prices.

According to common sense, conflicts should drive up the price of gold, but this hasn't happened. Instead, interest rate hikes have been the primary driver of gold's fluctuations.

A regression analysis by JPMorgan Asset Management found that the US 10-year real interest rate can explain 85% of gold price fluctuations from 1990 to 2021. However, this model stopped working after 2022, and central banks began buying gold frantically.

In 2022, global central banks' net gold purchases reached 1136 tons, but in the first quarter of this year, they bought only 57 tons, a significant decrease. The old map, which relied on interest rates, suddenly started working again.