Gold Prices
WGC report shows global GDP growth to drive gold prices in long run
This story was originally published at 23:02 IST on 17 October 2024
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MUMBAI – Gold prices are seen to be primarily driven by GDP growth over the long run. If there is a 1 unit rise in GDP, it would lead to a 2.8 unit rise in gold prices, the World Gold Council said in an analysis titled 'Gold's long-term expected return' on Thursday. Over the long horizon, an economic component such as GDP, coupled with a financial component such as capitalisation of global stock and bond markets will determine gold prices.
Gold's contribution to managing portfolio risk is well established, supported by a large work devoted to its hedging characteristics.
Due to its dual nature of a real good and a financial asset, the value of gold is not easily explained by traditional asset pricing models. "Gold has significantly outperformed both inflation and the risk-free interest rate: its average annual compounded return (in US dollars) from 1971 to 2023 was 8% for gold vs 4% for US CPI and 4.4% for the US 3-month Treasury," the WGC said.
A jewellery's income elasticity of demand measured through GDP showed that a 1% rise in GDP sees a 1% average increase in demand across the globe, and a reaction twice as large in emerging markets – indicating the importance of growth for physical gold markets. While the sensitivity of jewellery buyers to the price of gold showed that a 1% price rise in emerging markets results in nearly 2?ll in tonnage demand for jewellery. End
Reported by Sandeep Sinha
Edited by Vidhi Verma
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