(MENAFN) A recent report by Goldman Sachs suggests that the sharp increase in gold prices by $150 per troy ounce over the past two weeks has been driven by an increase in fear-related demand. The price of gold has risen to levels not seen since March 2020 due to banking and funding stress, and a sharp rise in the market-implied probability of a US recession next year. The report notes that during the recent sell-off, gold outperformed risk assets such as equities or credit, turning it into an effective hedge in the risk-off rotation.
The continuing turmoil in the banking sector has raised risk while the flight to safety amid the doom and gloom resulted in gold surpassing $2,000 a troy ounce for the first time since March 2022, when Russia invaded Ukraine. This trend is likely to continue as investors seek refuge in safe-haven assets during times of uncertainty.
The report by Goldman Sachs further states that the speed at which markets repriced a Fed pivot from 100-basis-point tightening to 50 bps in rate cuts by year-end has been unprecedented, leading to a spike in rates volatility to levels last seen in the depth of the 2008 financial crisis. This suggests that investors are increasingly concerned about the state of the global economy and are looking for ways to protect their wealth.
The recent decision by the US Federal Reserve to raise interest rates by a quarter of a percentage point after policymakers were faced with a banking crisis and elevated inflation may have further contributed to the volatility in financial markets. While the decision was aimed at curbing inflation, it may have also added to the uncertainty surrounding the global economy and fueled investors' fears.
As geopolitical tensions and economic uncertainty continue to dominate the news, it's likely that gold prices will remain high as investors seek refuge in safe-haven assets. With fear-induced demand driving up gold prices, it's clear that investors are increasingly concerned about the state of the global economy and are looking for ways to protect their wealth.
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