Editor’s Note
Gold prices have surged to a record high, driven by a weaker U.S. dollar, geopolitical tensions, and strong central bank demand. This article explores the factors behind the rally and what it signals for investors.
Gold recently hit an all-time high, surpassing $2,100 per troy ounce. The price surge is attributed to the weakening US dollar, geopolitical tensions from wars like the one in Ukraine, and a preference for safe-haven assets. Central bank purchasing policies are also acting as a catalyst for the rise.
Concerns over an economic recession have led to a decrease in luxury consumption, impacting diamond prices. The price index has fallen by 25% compared to last year’s peak. The emergence of lab-grown diamonds has further fueled the decline.
Gold prices broke through $2,100 per troy ounce on the 3rd, setting a new all-time high. In contrast, diamond prices have fallen by double digits this year. /AFP-Yonhap
The price trends of the world’s most beloved precious metal, gold, and the gemstone diamond, are diverging. While gold prices have hit record highs amid expectations of a weaker US dollar, diamond prices are plummeting due to the emergence of lab-grown diamonds, or ‘lab-grown diamonds’.
Gold, which traded around $1,200 per troy ounce in the first half of 2019 before the COVID-19 pandemic, recently surpassed the $2,100 mark, setting a new all-time high. It has risen by about 75% over four years. On the 3rd, the intraday high for spot gold was $2,136.36 per troy ounce. The previous record high was $2,072.5, set on August 7, 2020. Since then, gold prices have fallen slightly but are still trading above $2,000 per troy ounce.
During the COVID-19 pandemic, as major countries rushed to supply liquidity and market interest rates fell close to zero, gold prices began to rise sharply. After the US started raising benchmark interest rates from 2022, gold prices briefly plummeted but rose again following Russia’s invasion of Ukraine, buoyed by a preference for safe-haven assets.
The recent surge in gold prices is largely influenced by the weakening US dollar. Gold, classified as a safe-haven asset, and the US dollar tend to have an inverse price relationship, typically moving in opposite directions. As expectations grow that the US Federal Reserve (Fed) will cut benchmark interest rates in the first half of next year, the dollar index, which measures the dollar’s value against six major currencies, recently fell to its lowest level in four months.
The war between Israel and Hamas has also heightened geopolitical concerns, fueling the rise in gold prices as a safe-haven asset. Additionally, as the US imposed economic sanctions excluding Russia from the dollar payment network, central banks of countries like China, which have conflicts with the US, have supported gold demand by purchasing gold for asset diversification.
According to the World Gold Council (WGC), central bank gold purchases in the first nine months of this year are estimated at 800 tonnes, a 14% increase from a year ago. The People’s Bank of China, the top gold buyer this year, has expanded its gold holdings for 12 consecutive months.
A recent survey by the World Gold Council indicates that 24% of all central banks plan to increase their gold holdings within the next 12 months. Some analysts suggest that central banks are buying more gold as trust in the US dollar and US Treasury bonds has relatively declined due to the US government’s rapid debt increase.
The price of diamonds, known as the king of gemstones, has fallen by double digits this year. According to Bloomberg, the price of polished diamonds, the most commonly traded wholesale, has fallen by about 20% from the beginning of the year until last month. The price of uncut rough diamonds has plummeted by 35%. In a report released on the 2nd of this month, diamond analyst Paul Zimnisky stated that his self-compiled global rough diamond price index has fallen 15.7% since the beginning of the year. Compared to the peak in the first quarter of 2022, it has plunged by 25%.
Analysts say diamond prices have been significantly impacted as consumers reduce spending on luxury goods due to recession concerns. In particular, prices have fallen as lab-grown diamonds, manufactured in laboratories, have become more common.
The sales share of lab-grown diamonds compared to natural diamonds surged from 2.4% in 2020 to 9.3% early this year. Investment bank Liberum Capital analyzed that, by volume, the sales share of lab-grown diamonds has reached 25-35%.
Industry experts anticipate a revival in diamond consumption towards the year-end. Winter is the peak season for engagements, and diamond demand typically picks up during Christmas and Valentine’s Day.
The market is also paying attention to the potential impact of the G7’s ban on Russian diamond imports. On the 6th of this month, the G7 decided to ban imports of non-industrial Russian diamonds starting next month to cut off funding for Russia, which invaded Ukraine. Russia exported $4 billion worth of diamonds in 2021. Following Russia’s invasion of Ukraine last year, as the US and European countries included Russian diamond mining companies in their economic sanctions, diamond prices rose due to supply disruptions.
