After a period of restraint, Western investors have started to invest more heavily in the gold market again. This development has driven the gold price to a record high this week. On Tuesday, the price for one troy ounce of gold reached $2,531, representing an increase of over 20 percent for the year.

This price rally was fueled by purchases from institutional investors and optimistic bets by hedge funds. According to data from the World Gold Council, the holdings of physically-backed gold ETFs have increased by 90.4 tons since May, equivalent to a value of 7.3 billion US dollars. The ETFs recorded net inflows in seven of the last eight weeks.

After a period during which Western investors largely stayed on the sidelines, they have now picked up on the rally in precious metals again. Previously, this rally was primarily driven by Chinese investors who increasingly invested in gold due to turbulent local stock and real estate markets.

The West is waking up and recognizing what Asia had already perceived at the beginning of this year," commented Ruth Crowell, Chief Executive of the London Bullion Market Association.

Optimistic bets on the Comex market in Chicago, the leading futures benchmark for gold, reached a new high in the week leading up to August 13 since the COVID pandemic. According to the US Commodity Futures Trading Commission, more than 100 tons of new long positions were built up that week.

While the futures market is mainly used by hedge funds and speculative traders, gold ETFs are very popular in North America and Europe among institutional and private investors seeking an easy way to invest in gold.

The recent price surge from around $2,300 per troy ounce in June to the new record level seems to be primarily driven by American and European buyers who are anticipating lower borrowing costs. Falling interest rates increase the attractiveness of gold, as the precious metal does not yield a return and thus becomes more interesting compared to bonds.

We see that investors and speculators in the West are returning to the gold market," said John Reade, chief market strategist at the World Gold Council. "It's the fast money driving the gold price.

In anticipation of the speech by U.S. Federal Reserve Chairman Jay Powell on Friday, gold prices have been supported by expectations that the Federal Reserve may cut interest rates in September. The market is expecting nearly one percentage point in rate cuts by the end of the year.

Robert Minter, Director of ETF Investment Strategies at Abrdn, explained: "There was a party in the gold price, and the ETF investors simply were not invited. Now that Powell is pointing to an upcoming interest rate cut, the invitation is out.

Opaque purchases in the over-the-counter market, particularly by family offices fearing a devaluation of the US dollar, have also supported the gold price.

Demand from India has also increased significantly in recent weeks, driven by traditional purchases for the Diwali festival and a reduction in import duties that took effect last month.

India is currently experiencing enormous physical gold demand," said Crowell. "It is really a question of how quickly they can get the metal into the country, measured by the number of available flights.