Gold’s resilience: Shining bright amid record highs as Asia faces election year

As record-high prices cast a shadow, gold stands resilient, retaining its allure as a beacon of stability amidst the approaching year of elections in Asia. The precious metal gleams undiminished, a symbol of enduring value in uncertain times.

Gold prices increased by 15% for the year, reaching an all-time high of U.S.$2,135.39/oz in December due to geopolitical tensions in Ukraine and Gaza as well as expectations that the U.S. Federal Reserve would lower interest rates.

The most populous democracies in the world, from Indonesia to India, will be casting their votes in Asia this year. Asia has historically been the region that consumes the most gold. There will be elections in seventy other countries, including the United States.

All of the elections are significant. However, some elections have a greater potential to impact global affairs than others, according to Shaokai Fan, Global Head of Central Banks at the World Gold Council (WGC), who noted that gold prices increased last weekend when Taiwan held its elections.

Beijing called Taiwanese presidential candidate William Lai Ching-te a “troublemaker,” and his victory may have exacerbated tensions across the Taiwan Strait. Because gold is regarded as a store of value, investors rush to it during uncertain times.

In May of last year, Turkey’s central bank announced plans to reduce household demand for gold and discourage cash withdrawals due to worries that the purchase would exacerbate the nation’s trade imbalances.

Even this year, gold prices have remained above the US$2,000 mark due to geopolitical tensions caused by the violence between U.S.-backed forces and Houthi militants in Yemen that has spilt over into the Red Sea.

After the militants attacked their second U.S.-operated vessel in the region this week, the U.S. on Wednesday added the Houthi rebels back to its list of terrorist organizations. Airstrikes against the militants were earlier carried out by American and British forces in retaliation for attacks on ships that the fighters backed by Iran claim were a reaction to the Gaza conflict.

International conflicts and unpredictability in geopolitics, in my opinion, have been a recurring theme since Russia invaded Ukraine in 2022. And in terms of short-term spikes, that has affected the price of gold, according to Shaokai Fan.

Central banks began purchasing in large quantities after Washington took control of Moscow’s U.S. $ 650 billion in foreign exchange reserves in February of last year. This was because many of them wanted to diversify their holdings beyond the U.S. dollar.

Because some central banks may have believed that their foreign exchange reserves were not freezable, Fan said, “I think that was a wake-up call to some central banks as well.”

The American dollar and gold typically have an inverse relationship, meaning that whenever interest rates are lowered, the value of gold is likely to decrease.

The demand for safe-haven assets in the precious metal was fueled by geopolitical tensions, which offset the negative sentiment and prevented the precious metal’s price from declining despite the increase in interest rates over the previous 18 months.

China, which consumes the most gold globally, is also probably going to continue its scorching purchasing streak even as a sluggish economic recovery dents incomes.

“In China, it is expected to sustain its strength even though the country’s economy has been experiencing some turbulence. Throughout 2023, we have observed a fairly robust demand for retail gold among regular people, according to Fan.

Chinese demand for the precious metal is predicted to be piqued by investors’ worries about mainland China’s economy, its unstable real estate market, and Beijing’s tensions with Washington, which could worsen after Taiwan’s election, he said.