The gold price currently stands at US$1,938 per troy ounce.
Bullion still has some way to go before retaking its historic highs of US$2,050 per ounce, notched on 4 May. But the yellow metal is still up a solid 8.1% from the US$1,792 per ounce it was trading for a year ago.
As you'd expect, the rising gold price has not only benefited investors holding physical bullion but also offered some strong tailwinds for ASX gold shares.
This has seen the S&P/ASX All Ordinaries Gold Index (ASX: XGD) gain 21.2% over 12 months. That compares to a 3.5% gain posted by the All Ordinaries Index (ASX: XAO) over this same period.
With so much hanging on the trajectory of the gold price, what can ASX investors expect next?
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Where to next for the gold price?
For some insight into when the gold price might be set to resume its run higher, we turn to head of Americas at the World Gold Council, Joe Cavatoni (courtesy of Bloomberg).
Cavatoni says bullion is a "very unique" asset because of "the strategic drivers of gold and how gold is consumed worldwide".
One of the primary drivers of the gold price is its consumption, he said. This is "through jewellery, small bars and coins, maybe in technology like your iPhone, where it's a component".
This type of consumption will be higher when the economy is expanding, "putting money in pockets and people actually using that to invest in things, including gold".
Another primary driver for the gold price centres around market risk and uncertainty.
According to Cavatoni:
In that context, investors see the type of diversification benefit you get from gold in your portfolio as helpful. So it correlates positively when the S&P 500 goes up, and it correlates negative when the S&P goes down. So you've got those two strategic drivers.
With gold's haven asset status, it's also benefited from a series of financial crises earlier this year.
Pointing to the banking crisis in the United States and Europe, Cavatoni said these are moments when people will say, "Hey look, I need to make sure that I can preserve my asset pool. My real assets need to go up, my safe-haven asset."
On the flip side, one of the headwinds for the gold price this year has been restrictive monetary policy, with most major global central banks having ushered through significant interest rate hikes.
With higher rates, the opportunity cost of holding bullion rises.
But we look to be approaching the end of that restrictive tightening cycle.
According to Cavatoni:
When the Fed has managed to cool off the economy, once that starts to develop, that monetary policy will loosen up, the ability for gold to start to see itself run. Right now what we're seeing is range-bound pricing on the gold market. So you see us holding firm … but not breaking out.
As we wait for the gold price to break out again with more institutional buyers returning to the table, Cavatoni said central bank buying should help support the yellow metal near current levels.
"The range-bound pricing behaviour we're getting is being held up by mainly a lot of buying by central banks, which is a trend we've been seeing for a long time," he said.
