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Strategists at Natixis look at periods when gold prices have risen significantly and identify four usual explanations for a rise in the yellow metal. 

Key quotes

“The first explanation is expected inflation, which drives savers into gold as a safe-haven against a loss of the value of money. The rise in the gold price of 1973-75 and 1978-81 can be attributed to inflation.”

“The second usual explanation is a depreciation of the dollar: gold is then a substitute for the dollar as a reserve currency. The rise in the gold price in 1973 to 1975, 1978 to 1981, 1987-88, 2002 to 2012 and 2020 can be attributed to dollar depreciation.”

“The third explanation is a rise in risk aversion and, as a result, an equity market decline, resulting in investors switching from equities to gold. The rise in the gold price can be linked to the fall in stock market indices in 1987-88, from 2009 to 2012 and in 2020.”

“A fourth explanation is an excessive increase in the quantity of money, which leads to a loss of confidence in money to store savings. This can be the quantity of money in the United States (in dollars) or in the OECD as a whole. Rapid money supply growth may explain the rise in the gold price from 2009 to 2012 and in 2019-2020.”

“The rise in the gold price in the recent period (since March 2020) can be attributed to dollar depreciation, falling share prices and monetary expansion.”