The price of gold hit an all time high of $2,513.79 (£1,932.87) per ounce on Tuesday morning as investors hope the US central bank will cut interest rates.
The surge in the price of the precious metal, a safe haven asset for investors due to its real world use cases and widely held intrinsic value, means the gold price has now risen by nearly 22 per cent this year alone.
It also takes the price of a standard 400 troy ounce bar of gold, which weighs 12.4kg, to $1m (£768.9m) for the first time ever.
Growing expectations of a rate cut from the Federal Reserve (Fed) is seen as the main reason for the recent price rise.
Gold tends to rally as interest rates fall because the lower return on cash held in a bank – or bonds being issued by governments – pushes investors away from cash or debt towards the metal.
But other factors have been pushing the price of gold higher over the last few years. Gold’s ascent has been aided by the widespread inflation seen since the end of the pandemic and the ratcheting of geopolitical tensions across the world.
The value of physical gold is up by 50 per cent in nominal terms in the past three years, according to the analysis by investment platform AJ Bell, beating the 43 per cent rise in Bitcoin’s and 27 per cent growth in an average global index tracker.
Central banks – particularly those in the global south – have been buying up the metal at record rates over the past two years. They have not only seen the asset as a sensible hedge against inflation and geopolitical tensions, but also a means to diversify from the dollar after Western countries chose to immobilise much of Russia’s dollar reserves after its invasion of Ukraine.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Gold has made good on its promise as an inflationary hedge over the last three years, carving out a healthy real return for investors.
“That’s despite rising interest rates, which should in theory take the shine off the precious metal.
“Central banks have been attracted to gold because it’s liquid, carries no credit risk, and is free from any geopolitical interference.”