Domestic price of gold

IBISWorld expects the domestic price of gold to increase by 16.8% in 2023-24, to $3,178.8 per ounce. Gold is a counter-cyclical commodity and is viewed as a safe haven asset during national and global economic uncertainty. In the current year, rising economic unrest, including geopolitical tensions, US presidential elections and inflationary pressures, is expected to boost demand for gold, exerting upward pressure on the domestic price of gold. A string of international bank collapses since March 2023 is also increasing the appeal of safe haven assets. Moreover, several global central banks and Chinese private investors are buying gold instead of owning currency.

Gold is valued both in terms of its use as a commodity and as an investment mechanism. Gold is particularly valuable when economic uncertainty rises, as it tends to maintain or increase in value during economic downturns. Over the long term, gold can also be used as a hedge against inflation, as the value of gold tends to increase when the value of fiat currency declines. In Australia, the domestic price of gold is closely linked to the global price and is therefore also affected by changes in the value of the Australian dollar in US currency terms.

Over the past decade, the domestic price of gold has fluctuated moderately. Since the global financial crisis in 2008-09, the domestic price of gold has remained significantly high. Many investors turned to gold as a safe monetary asset during the crisis. This strong boost in demand contributed to a surge in the domestic price of gold up to 2011-12. Gold prices dropped slightly in 2012-13 and 2013-14 as the global economy stabilised and financial markets recovered. However, since 2014-15 the domestic price of gold has risen consistently as investors have sought to reduce risk amid rising uncertainty in global equity markets. Unexpected market shocks, such as the 2016 Brexit vote, the Black Monday sell-off of Chinese equities in 2017 and the COVID-19 pandemic, have led to a higher domestic price of gold.

Safe haven demand has exerted upward pressure on global gold prices over the past five years. The COVID-19 pandemic, geopolitical tensions, the threat of a global recession and inflationary concerns prompted investors to hold gold rather than more risky investments. The depreciating Australian dollar against the US dollar has also boosted domestic gold prices. The rising price of gold over the past five years has been particularly remarkable given the strong growth of the All Ordinaries index, which normally trends in the opposite direction. This suggests that economic uncertainty is high, despite strong growth in equity markets. Overall, IBISWorld forecasts the domestic price of gold to increase at a compound annual rate of 12.4% over the five years through 2023-24.