Sanctions and conflicts have driven gold prices higher. What you need to know

The information in this material is not an investment recommendation

In recent months, gold prices on the world markets several times updated the record: for the year the price of the yellow metal has increased by more than 30%. Why "the most unprofitable investment" is becoming more expensive and how it is connected with conflicts, the dollar and the elections in the United States - in the material of "Izvestia".

What is happening to gold

- The price of gold on the exchanges has been rising for years, but 2024 was special: gold quotes broke their own record dozens of times. On October 30, for the first time in history, the gold price reached $2800 per troy ounce. Then the trend continued, and in early February 2025 the record was updated: the futures price reached $2900.

- Not only spot prices, i.e. for current sales, but also futures, which reflect the expected value of gold, rose. At the same time, shares of gold mining companies grew at a much more modest pace. This may indicate that in the long term buyers are not interested in expanding the "gold portfolio", they need the precious metal "here and now", as insurance against possible risks.

- Analysts believe that interest in gold is fueled by instability in the Middle East and the protracted conflict in Ukraine, as well as the acceleration of inflation in Western countries and talk of approaching global recession - a steady decline in the world economy for six months or longer. In conditions of deficit of reliable instruments , investors choose a conservative strategy: gold is considered a safe haven that allows to wait out possible storms and preserve capital.

Gold went up in price due to sanctions against Russia

- Analysts call the blocking of Russia's assets abroad one of the main reasons for the rise in gold prices. Western economists warned that the seizure of Russian assets could undermine confidence in the dollar and euro, but they had to give in under pressure from politicians. As a result, Europe not only blocked Russia's assets, but also began spending the proceeds from them to help Ukraine and to pay the costs of lawsuits (we discussed in detail how Moscow is responding to the decision to seize the proceeds from the assets here).

- In response to the West's unprecedented actions, investors got nervous. It is worth noting that all the world currency systems that have existed so far were built on trust, and it was the crisis of trust that led to their collapse. The actual seizure of another country's assets for political reasons raised very strong doubts about the fairness of the existing global financial system. The states that traditionally kept part of their assets in European and American currencies rushed to convert them into gold. China and India turned out to be the leading buyers of the metal.

- Central banks are not just diversifying their assets into gold, they have also started moving their gold reserves out of Western countries to protect them from risks. In particular, the Reserve Bank of India has withdrawn about 100 tons of gold from its deposits in the UK. This is the largest transfer since 1991. In this way, the country plans to protect itself from foreign policy risks and offset inflation.

How the dollar is linked to gold

- The yellow metal is considered the most conservative and reliable asset: it retains its value despite all shocks. It is not by chance that the world currency systems were built on gold, which provided the possibility of international trade. The fact that the dollar was tied to gold helped it to consolidate its position after World War II and establish itself as the world's main currency.

- In 1971, the U.S. abandoned the conversion of the dollar into gold, but the link between the U.S. currency and the metal remained: now gold prices show how much the dollar has depreciated, that is, the higher the price of the metal, the more the currency depreciates. For the same reason, gold quotes are affected by the situation in the United States, and primarily by the decisions of the Federal Reserve System (FRS), which performs the functions of the Central Bank.

- Now the forecasts of gold quotes depend on the level of U.S. inflation, unemployment in the U.S. and the Fed rate. The stronger the labor market, lower inflation and the Fed Funds rate - the more the dollar strengthens and the more noticeable the decline in gold prices. On October 31, the cost of gold bullion fell by 2% amid the news that inflation in the U.S. reached its lowest level since 2021. However, the next day the price of gold went up again.

How the U.S. elections will affect gold

- The return of the "uptrend" in the fall of 2024 analysts associated with the expectation of the results of the elections in the United States. The fact is that gold prices depend very much on the situation in the United States, and on the policy that the head of the White House chooses. So, in 2016, when Donald Trump took office and began to implement protectionist policies to strengthen the dollar, gold futures fell by 1.2%. In turn, a weaker dollar leads to higher prices for the precious metal.

- Analysts tend to believe that the price rally for gold will continue in any case, because the large-scale spending of President Donald Trump, inevitable for the implementation of his plans, will accelerate inflation.

Long-term investment

- Financiers have an expression "gold is not an investment". It is a very specific asset that is suitable for large investors - central banks, corporations and large companies. In conditions of instability, gold helps to save money and protect them from inflation simply because this metal has unique properties and is always in demand. But it is unlikely that you will be able to multiply your capital by investing in gold now, because it is already at its peak price, and it is impossible to predict how long the upward trend will continue.

- Gold will not bring quick income. Precious metals are in principle a risky investment - it is impossible to predict their value and instead of profit you can get losses. The Central Bank of the Russian Federation earlier recommended using gold as a long-term investment for 10-20 years, because on a long distance it more often overtakes inflation.

- It is not very profitable to store gold in bars: it is difficult to buy them and even more difficult to sell them, besides, the difference in price between buying and selling will be significant - investors call it a spread, and in this case it will not be in favor of the investor. If you store bullion at home, there is a risk that it will be stolen, and you will have to pay extra for storage in a bank. Any scratch on the bullion reduces its value by 10% or more. In addition, in 2024 for the sale of bullion bars will have to pay income tax of 13% (15% if the amount of income exceeded 5 million rubles for the year).

- A more common form of cash gold is coins. But their price can be much higher than the cost of the metal itself, as banks charge a commission. When selling coins, the bank will buy them back with a discount of up to 30% of the original price, and any scratches and defects will further reduce the price. Here you can earn money by buying commemorative coins, which, if you are lucky, will be valued by collectors.

- Metal accounts are a cashless alternative to investing in gold. Virtual grams of gold are easy to store and easy to sell. If the metal was stored on the account for more than three years, you won't even have to pay personal income tax when selling it. It should be remembered that metal accounts do not have an interest rate, i.e. such an account will not generate current income. In addition, metal accounts are not included in the deposit insurance system, that is, the state will not compensate for its value in the event of revocation of the license of the bank.

- Analysts consider shares of gold mining companies, which are currently undervalued, to be a promising investment. But high market volatility makes this instrument unpredictable, especially in the short term.

In preparing the material, Izvestia talked to and took into account the opinions of:

• Igor Didenko, member of the International Union of Economists;
• Professor of the Financial University under the Government of the Russian Federation Konstantin Simonov;
• financial analyst and journalist Ivan Danilov;
• Yulia Afanasieva, analyst at Finam Group of Companies.