TEMPO.CO, Jakarta - Gold prices have climbed significantly in recent weeks, reaching approximately US$3,350 per troy ounce (equivalent to 31.1 grams) in early April.
With the exchange rate hovering around Rp16,800 per U.S. dollar, this puts the price of gold at about Rp1.8 million per gram.
Surprisingly, the price spike has not discouraged buyers. Instead, a unique trend has emerged: more people are purchasing gold even as its price continues to rise. This behavior goes against conventional investment wisdom, where gold is typically bought at low prices and sold when the market is high.
According to Listya Endang Artian, a lecturer and researcher at the Islamic University of Indonesia (UII), the surge in gold purchases is driven by its role as a store of value. Amid growing global uncertainty, people are turning to gold as a means of preserving wealth.
Listya explained that the trend reflects gold’s status as a safe haven asset, especially during times of financial instability. As financial markets face systemic risks, many are choosing to move their money into precious metals.
Listya outlines several key reasons behind the rising price of gold and the strong public interest in buying it, despite its growing cost:
1. Geopolitical Tensions and Global Uncertainty
One of the primary factors fueling gold demand, Listya noted, is the current state of geopolitical instability, which raises concerns about global economic stability.
In such environments, gold is often the asset of choice due to its independence from any single country's economic health or corporate performance.
Conflicts such as the war in Ukraine or ongoing trade disputes between the U.S. and China have rattled stock markets and spurred investors to seek safer alternatives. Gold, being less volatile than equities or government bonds, has become increasingly attractive.
“This explains why gold prices often soar during periods of international conflict or political crisis,” said the lecturer at UII’s Faculty of Business and Economics in Yogyakarta.
2. Expectations of Monetary Easing and Central Bank Policies
Market expectations around central bank policies, particularly interest rates, play a crucial role in influencing gold prices. The Expectation Theory suggests that asset prices, including gold, are shaped by investor anticipation of future interest rate decisions by central banks such as the U.S. Federal Reserve.
When interest rates are low, as they have been following the COVID-19 pandemic, the opportunity cost of holding gold, an asset that does not yield interest or dividends—also decreases. As a result, investors are more inclined to buy gold, pushing prices higher.
Listya pointed out that aggressive monetary easing by the Fed not only reduces interest rates but also injects more liquidity into the market, which can trigger inflation. In this context, gold serves as a hedge against inflation due to its relatively stable value.
“This is why dovish monetary policies can significantly influence investor decisions to buy gold,” she said.
3. Weakening of the U.S. dollar
Another major macroeconomic factor influencing gold prices is the exchange rate of the U.S. dollar. Since gold is priced in dollars, a weaker dollar makes gold cheaper for investors using other currencies.
“When the U.S. dollar declines, international investors can buy more gold with less local currency, thereby boosting demand,” Listya said.
This dynamic can be explained through Exchange Rate Theory, which highlights how currency fluctuations affect demand for internationally traded goods, including commodities like gold. A weaker dollar enhances the purchasing power of foreign investors, which in turn drives up gold prices.
4. Large-Scale Purchases by Central Banks
Major central banks, including those in China, India, and Russia, have significantly increased their gold reserves in recent years as part of their foreign exchange diversification strategies. These large purchases reduce global gold supply and consequently raise its price.
Listya noted that such strategic buying not only lifts demand in the short term but also strengthens market sentiment around gold as a high-value, safe asset. This perception encourages both institutional and retail investors to follow suit.
“In the long term, these central bank purchases reinforce the idea of gold as a reliable investment during times of global uncertainty,” she concluded.
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