Why is Gold so Expensive? Gold Hits New All Time High

Posted - December 4, 2023
why is gold so expensive

This was a big weekend for gold. For just a moment on Sunday, gold’s value skyrocketed to over $2,100 per troy ounce. For those who haven’t been watching the market, this is an all-time high for the precious metal. In other words, gold has never been as expensive to own as it was on Sunday night. 

Why is gold so expensive? And more importantly, do we expect these prices to stick around? Gold gave up some moderate gains Monday morning, falling below the record-breaking $2,100 figure. Some investors are buying the dip, while other experts warn that gold could potentially continue to fall. 

In this guide, we’re taking some time to walk investors through an important question: why is gold so expensive right now? A complex combination of geopolitical and economic factors have caused gold to hit record highs in 2023, and our goal is to get to the bottom of one of gold’s biggest bull runs in recent history. 

Why is Gold so Expensive Right Now? 

Before we explore the rationale behind why gold is so valuable in general, we should start with some important context. Why is gold so expensive right now? 

The short answer is that general economic insecurity, the perception of gold as a safe haven asset, and the looming prospect of falling interest rates have caused gold’s recent record-breaking bull run. Let’s take a closer look at how these factors converged to give gold stackers one of their best weekends to date. 

Economic Insecurity 

Economic insecurity has always been associated with rising gold prices. As we’ll explain in the next subsection, gold is often called a safe haven asset by economists. This term might seem confusing, but it’s actually pretty simple – we’ll give you the full story below. 

For the general economy, several worrying indicators might be behind the influx of gold investors driving prices up. 

The ongoing war between Ukraine and Russia, inflamed Israeli-Palestinian tensions, and the threat of a renewed trade war with China are all foreign factors that might make traditional safe haven assets like gold seem more attractive to investors. 

Things haven’t been great on the homefront, either. Why is gold so expensive in the United States? For many citizens, the serious inflation problem of 2023 makes assets like gold seem like a safer bet than stocks and bonds. 

Gold as a Safe Haven Asset

What do all of these economic conditions have to do with gold? Gold is something we like to refer to as a safe haven asset. Gold is non-correlated, which means that its value is not directly dependent on the overall American economy being strong. For stocks and bonds, a strong economy means that people are spending, and this spending keeps companies profitable – and drives stock prices up. 

But this schema isn’t necessarily true for gold. In fact, gold might be negatively correlated with some of the traditional economic indicators that help us predict the value of stocks and fiat currencies. In other words, a weak economy and high inflation can be good for gold bullion prices. 

Falling Interest Rates

Interest rates are set by the Federal Reserve Bank. When the Fed lowers interest rates, we tend to see an increase in the price of precious metals like gold and silver. Again, this has a lot to do with gold’s status as a safe haven asset. 

2023 1 oz American Gold Eagle Coin Reverse
2023 1 oz American Gold Eagle

When interest rates are decreased, people tend to turn to safe assets like gold, silver, and platinum. Why is gold so expensive now? Recent news from the Federal Reserve suggests that they might be easing their fight against inflation. This means lower interest rates, which has historically proven valuable for gold prices. 

Not all economic experts agree on an inverse relationship between interest rates and gold’s spot price. Some analysts actually claim that there is very little substantive historical evidence to suggest that gold will decrease in price when interest rates are hiked.  

Gold Price Indicators 

Now that we have a bit of background on the answer to, “why is gold so expensive right now,” let’s take a closer look at gold’s price indicators. As investors probably already know, gold is an extremely volatile commodity. 

This means that gold’s price can increase quickly, and it can fall rapidly as well. This often happens without warning, and it can be hard to reliably predict whether gold will appreciate or depreciate from day to day. 

Still, there are 2 main things you should understand about how gold’s price is determined. If you understand gold’s status as both a non-correlated asset and a safe haven investment, you should be able to reliably assess how gold should fit into your portfolio. 

What is a Non-Correlated Asset? 

Why is gold so expensive as a non-correlated asset? Most non-correlated assets tend to be volatile. When the economy enters a recession or extreme bear market, it makes sense that the value of a non-correlated asset would increase. 

Valcambi 1 oz Gold Bar Serial Number
Valcambi 1 oz Gold Bar

We explained the basics of what a non-correlated asset is earlier in this guide. Still, the concept can be confusing – especially for new investors. 

Let’s talk for a bit about the basics. Correlation is how we measure the extent to which two things relate. Sunshine is correlated with brightness. The more sunlight available outside, the brighter it’s going to be. Clouds, however, are negatively correlated with brightness. This is the case because brightness doesn’t increase when there are more clouds – it actually decreases. 

Traditional investments like stocks and bonds are correlated with the rest of the traditional economy. When the economy is good, stock and bond prices tend to go up. The same is true for the United States Dollar and other fiat (paper) currencies. 

This isn’t the case for gold and other non-correlated assets. When the economy becomes more stable and the U.S. Dollar grows more valuable, gold tends to become less valuable. 

What Makes Gold a Safe Haven Asset? 

Why is gold so expensive, and what does gold’s price have to do with its status as a safe haven asset? If gold was not a safe haven asset, it wouldn’t have broken the records that it broke this weekend. In fact, very few investors would even stack gold bullion at all if it weren’t for its status as a qualified safe haven asset. 

Gold is a safe haven asset because it tends to do well during economically unstable or uncertain times. Investors and financial advisors have been saying this for decades. Why is gold a safe haven asset? Precious metals hold intrinsic value. This means that they’ll still be worth something – even if the traditional economy circles the drain. 

Will Gold Prices Keep Going Up? 

Why is gold so expensive right now? This is a good question, and we’ve spent quite a bit of this guide explaining the reasons behind gold’s record-breaking weekend. But there’s an even more essential question that needs answering before we let you go. 

2024 1 oz British Gold Britannia Coin
2024 1 oz British Gold Britannia Coin

Will gold’s price continue to climb? It’s almost impossible to say. Even the most well-informed gold stackers and financial experts in the world would have trouble predicting the future price of gold with any level of certainty. 

Still, there are quite a few factors that might influence the value of gold. Why is gold so expensive? If you know the answer to this question, you should be able to make your own judgment about whether or not it’s the right time to buy gold now. 

Key Factors to Consider

We recommend keeping 3 main factors in mind when you try to figure out: why is gold so expensive? Interest rates from the Federal Reserve, supply and demand dynamics, and general economic insecurity all influence the value of gold. 

Interest Rates from the Federal Reserve 

As we explained earlier, the relationship between gold prices and federal interest rates is disputed by economists and financial advisors. 

On one hand, evidence from the past two decades suggests that gold has an inverse relationship with interest rates. That is, gold becomes more valuable when interest rates decrease – and might crash in value when rates hike. 

But on the other hand, some experts believe that there’s no actual long-term evidence that gold prices are directly correlated in any way with interest rates. For your purposes, we recommend caution when using interest rates to predict the value of gold. Why is gold so expensive right now? Gold’s recent price hike might have to do with the Federal Reserve’s intention to lower interest rates in the near future. 

Supple and Demand Dynamics 

Why is gold so expensive in general? Gold is always going to be expensive, especially compared to some of the other precious metals we sell. The reason for this has a lot to do with supply and demand dynamics. 

If you’re a serious investor, you should already know the basics of supply and demand. When there’s not very much of something and everyone wants it, then that thing is going to be expensive. The inverse is also true. A high supply of a given commodity and low demand means that the asset will decline in value. 

For gold, supply and demand dynamics are everything. Gold’s rarity is a big element of its value. Why is gold so expensive all the time? The short answer is that gold is both rare and useful to people. It makes sense, then, that we call it a precious metal! 

General Economic Insecurity 

Why is gold so expensive when the economy is doing badly? As we explained earlier, people love to put their money on precious metals when they’re concerned about the future of the traditional economy. Why would you buy stocks and bonds, for example, if you feel like the United States economy is about to enter a recession? 

Will gold become more expensive in the next couple of years? This depends largely on how you think the general world economy will fare. If you’re someone who believes that the global economic system is heading for disaster, then expect gold prices to climb even further. But if you trust in the world economic balance, then gold might not have the bull run some investors predict. 

Is Buying Gold a Good Idea Right Now? 

Why is gold so expensive, and should you buy it? We recommend buying gold primarily as a way to diversify your portfolio. Adding gold to your investment collection can help you stay in the green – even if the economy enters a recessionary period. 

We generally don’t recommend that investors buy gold in anticipation that its value will climb considerably. Because gold is both a non-correlated asset and a volatile commodity, precious metals like gold are never considered a safe bet. Why is gold so expensive? If gold’s prices have you concerned, it might be time for a “wait and see” approach. 

1 oz Gold Bar - Royal Canadian Mint
1 oz Gold Bar – Royal Canadian Mint

Buying the Dip Vs. When to Sell

Should you buy the dip before gold increases in value? When we use the term “buy the dip,” we’re referring to the process of purchasing a commodity while its price is low. An asset like gold drops below a key support, bullish investors call this a “dip.” Buying low and selling high is the key to a healthy investment portfolio. 

But when gold’s price is as high as you think it will go, it might be time to sell. Why is gold so expensive right now? If you’re scratching your head about gold’s current bull run, we’d recommend picking a “selling point.” When gold hits what you imagine is its absolute high point, it should be time to liquidate. 

Final Thoughts: Why is Gold so Expensive? 

Over the weekend, gold shocked the entire investment community by hitting an all-time high. Why is gold so expensive right now? Some investors think that this is just the beginning, and that gold will continue to smash records as the global economy pushes along in a state of flux and insecurity. 

Others are not quite so bullish. As always, your goal as a gold investor is to buy low and sell high. We hope we’ve provided you all the information you need to make an informed investment decision. 

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About The Author

Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.