Economic, Political, and Technological Drivers of the Rising Costs of Gold

Kindi Lantz novembre 15, 2024

Historical Increases in Gold Prices

Gold is a non-renewable resource. It can be traded, it can be mined, but it can't be created. Its scarcity has made it valuable and newly discovered reserves are few and far between. Experts agree that all gold reserves may be fully mined in the next 15 or 20 years.  

Typically, when discussing gold prices on a global scale, the London spot price is referenced. That price has increased by about 66 times since 1968, with the most significant increases occurring in more recent years—especially in the past year.

Typically, when we see increases in gold prices, other economic trends are similar. Generally speaking, when the US dollar weakens, prices of gold will rise. The reverse is also true; as the US dollar strengthens, the price of gold will drop. That is not the case with the recent rise in gold prices. This is partially due to expectations of interest rate cuts as it pertains to the US dollar.

However, with over-issuance of currency around the world, the purchasing power of the United States and global credit currency has declined, positioning gold as a core asset, enhancing its desirability, and leading to an increase in price.

Recent Increases in Gold Prices

Globally, both edible and non-edible gold prices are on the rise, and they have been for quite awhile. As suppliers of edible gold leaf and edible gold flakes, we have witnessed this price surge first-hand and it is far more extreme than typical inflationary increases. 

Over the past year in the United States, the price of gold has risen by more than 35%. That’s nothing compared to the past 5 years, though, which shows an increase of more than 85%. Crazy, right?!? Want to hear something even crazier? During that same time span, the USA is showing less of an increase than many other areas worldwide. Check out the 5-year increase in gold prices from other countries around the world:

• Australian gold prices have risen by 90%
• South African gold prices have risen by 115%
• South Korean gold prices have risen by 120%
• Japanese gold prices have risen by 159%
• Russian gold prices have risen by 185%
• Sri Lankan gold prices have risen by 200%
• Egyptian gold prices have risen by 465% 
• Turkish gold prices have risen by 998%
• Argentinian gold prices have risen by 2489%

In fact, very few countries fall below the 5-year percentage increase that has been experienced in the United States. If you didn’t find it glaringly obvious before, these numbers should make it very clear—gold’s value has been and is continuing to skyrocket globally!

What’s driving this massive growth in gold prices? Let’s take a closer look.

Why is Gold Getting More Expensive?

There isn’t a single cause for the rising cost of gold but instead a combination of factors at play. These factors feed off of one another to further amplify the escalation of global prices of gold. Among the most influential factors at play are economic instability, geopolitical unrest, technological material demands, and institutional investments—each playing its part in the game of supply and demand.

Let’s dig a little deeper into how each of these players is impacting the price of gold.

Economic Uncertainty and Geopolitical Tensions are Significantly Contributing to Higher Prices in Gold

The instability in economic conditions has led to a lot of uneasiness when it comes to risk and investments. Increasing geopolitical unrest is further escalating the uptick in prices of many precious metals, with gold at the forefront of this upward trend.

Multiple Wars and Conflicts Worldwide are Creating Market Uncertainty

Global conflict is present at a rate higher than the better part of history, and it isn’t holding at a stagnant rate, either. Much of these conflicts are waged by non-state actors such as political militias, criminal, and international terrorist groups, and we can’t forget the war on Ukraine and tensions in the Middle East.

Wars and conflicts such as these have always pushed global investors toward gold because while monetary investments tend to flux, gold is known for its value retention. This is true for both individual investors and institutional buyers who seek to safeguard their assets during unstable times. Because of its attractiveness as an investment option, gold is being bought up, which is reducing the supply.

We know, from the law of supply and demand, that with an increase in demand and a decrease in supply, the price of gold is naturally set into an upswing. Furthermore, there’s a cyclical situation—as gold prices continue to rise, so does the demand. The supply dwindles further and the price rises again, which results in more demand, further decrease in supply, and so on.

Global Instability of Economics

The supply chain issues created from global conflicts and wars have turned a lot of investors to gold, but these conflicts alone are not responsible for the overall price hike. There are several other geoeconomic influencers that have been stressors on the global economy, including historically high debt levels, the cost of climate change and natural disasters, a widening of the income disparity gap, and more. This instability has further fueled the concern surrounding other investments, magnifying the desirability for gold.

Geopolitical Uncertainty and Geoecononomic Fragmentation

As we noted in the previous section, when the world is faced with geopolitical turbulence, gold becomes a safe investment option. Also related to global conflict is the issue of geoeconomic fragmentation, which has led to sanction invasion tactics. Specifically, the USA responded to Russia’s illegal invasion of Ukraine by imposing significant sanctions. This led of the individuals and entities who have had sanctions imposed on them to purchase gold as a means of going “under the radar” and bypassing said sanctions. But what makes gold impervious to detection and market fluctuation?

Gold is Typically Immune to Inflation and Market Volatility

With global conflict and economic instability, inflationary pressures are severely impacting the value of the dollar and other currencies. The liquidity and universal acceptance of gold have made it an appealing alternative, meaning folks around the world are diversifying their portfolios to include gold as a safety net for their financial situation.  This is as true for individual investors as it is for Central Banks. 

Central banks from various countries have bee gradually increasing their gold investments and we have seen over 1000 tons purchased each year in 2022 and 2023, and 2024 is not looking like it will be far behind. This is substantially impacting the availability of gold and increasing prices.

Russia has Increased Gold Investments Due to Sanctions

Russia is the world’s second largest gold producer, and while shipping and trade sanctions were meant to thwart the country’s economy, the gold market seemed to explode, with other countries purchasing large quantities of gold from Russia. This is all part of their broader gold-fueled economic strategy, having pegged its primary currency, the ruble, to gold.

It would appear that sanctions have not stopped Russia in its tracks, but have merely made them further shift their strategy to trading gold. The result has been further tightening of the global supply of this valuable commodity. These sanctions, combined with increased demand, have pushed prices up as supply becomes even more constrained.

Gold is an Important Component in Technological Advancements

Gold is frequently used in the development of electronics and other high-tech applications. It’s desired for its electrical conductivity and malleability, and because it is highly resistant to corrosion. As technology has been rapidly advancing, so too has the use of gold, which (you guessed it) directly impacts the overall supply.

Gold is Used in Artificial Intelligence

Because of the aforementioned desirable traits, gold is frequently used in the production of GPU (graphics processing units) microchips for high-performance computing. GPUs are utilized in machine learning and quick rendering of 3D images for AI and in other industries such as gaming computer aided design (CAD). With the rapid rate of AI creation and adoption by the public, gold has become a highly-sought after material in the tech space. 

Gold is Used in Aerospace

Aerospace engineering has depended on gold plating for decades. This plating acts as a protective coating on satellites, space craft, space suits, onboard electrical components, and more. Advancenents in aerospace, including an increase in satellite-powered broadband internet services, has also contributed to a dip in gold supply.

We’ve mentioned the interconnectedness of the drivers of this global price increase and how they keep building on each other to bolster the value of gold, making it a more attractive investment option. With wars, political and economic unrest, and the overall hit on supply as a result of rapid technological advancement, individuals and banks (including government banking institutions) have taken notice and are stockpiling gold at rapid rates. Of course, this too has added to the demand pressure and increase in price in this highly sought-after asset.

The upward trend in gold prices is also impacting the culinary industry. Because edible gold is simply pure gold that has been melted down and pounded into thin sheets or flakes, the price of edible gold also reflects the global price increase. But, if you want high-quality, 24-karat edible gold at a great price, you can find it in our online edible gold shop!