If you thought gold’s run over the past five years was extraordinary, returning 177% (1), get ready for the next five.
Since 2020, the value of gold has skyrocketed (2) from $1,585 per ounce to over $4,500 per ounce.
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Now, German investment bank Deutsche Bank predicts it will almost double to $8,000 per ounce by 2031.
In a research note published on April 27, Deutsche Bank strategist Mallika Sachdeva and research analyst Michael Hsuah noted that China, Russia, India and Turkey and emerging market central banks are accumulating (3) gold.
This includes the central banks of Kazakhstan, Saudi Arabia, Qatar, Egypt and the United Arab Emirates.
As The Northern Miner (4) reports, since the 2008 financial crisis, these central banks have collectively increased their total bullion reserves to more than 225 million ounces.
According to Deutsche Bank’s model (5), if their collective gold holdings reached 40% of total reserves, gold could reach $8,000 per ounce.
In other words, demand from these institutional buyers is driving up gold prices. Here’s why they’re hoarding this precious metal.
Researchers predict a new world order with gold at the forefront
Sachdeva and Hsuah noted a common thread among many of the countries hoarding gold: vulnerability to Western trade sanctions.
They argue that at the same time that the central banks of these countries have been increasing their gold reserves, they have been reducing their US dollar reserves as a way to achieve independence from those sanctions.
“The dollar banking system has become a weapon,” write Sachdeva and Hsuah.
Researchers predict a new world order in which gold (not the US dollar) will be the monetary anchor.
The trend of central banks increasing their bullion reserves is certainly not slowing down.
Last year, the World Gold Council surveyed (6) central banks around the world about their intention to purchase gold. As Mining.com reports (7), 76% said they planned to increase their gold reserves in the next five years and a similar number (73%) said they would reduce their US dollar reserves.
Most said buying gold was a good way to protect themselves against the impact of interest rates, inflation and geopolitical instability. So if central banks are doing it, should you?
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Gold prices are not guaranteed.
It is one thing to invest in bullion as an institutional investor, such as a central bank, and quite another to do so as an individual.
Even though experts at Wells Fargo and Deutsche Bank predict gold will reach $8,000 an ounce, there is no guarantee that will happen.
In fact, the same geopolitical tensions that make gold attractive to central banks also make it a risky investment. For example, in March, gold recorded its worst monthly decline in more than a decade, falling nearly 11% amid geopolitical tensions linked to the war between the United States and Iran.
That’s why it’s important to weigh the value of gold in your overall investment portfolio.
Billionaire investor Ray Dalio recommends a 5% to 15% gold allocation in an investment portfolio. Sprott Asset Management suggests (8) between 10% and 15%.
There is no need to invest in solid coins or bars; You can opt for gold ETFs, mining stocks, or gold-backed funds.
It’s a good idea to talk to a financial advisor to determine the right balance in the context of your own portfolio and your short- and long-term goals.
And even if many of the world’s central banks are reducing their US dollar reserves, it is worth noting that the dollar remains the world’s leading reserve currency.
It is always advisable to have your own reserves in US dollars (in the form of an emergency fund to cover up to six months of expenses) to protect yourself from unexpected shocks.
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Article sources
We rely only on verified sources and credible third-party reports. For more details, see our ethics and guidelines.
curve (1); Macrotrends (2); Deutsche Bank Research (3), (5); The Miner of the North (4); World Gold Council (6); Mining.com (7); Sprott Asset Management (8)
This article originally appeared on Moneywise.com with the title: Gold to hit $8,000 by 2031, Deutsche Bank predicts. Why the world is now distracted by this precious metal
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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