With the exception of cryptocurrencies, no asset class evokes as much emotion as gold. Skeptics point out that the precious metal does not offer returns like stocks or bonds. Yet gold investors believe it has held its value for centuries. In fact, they consider it an excellent hedge against inflation. When the value of “regular” money has evaporated, and the stock markets have collapsed, they still have their gold bars, albeit in the digital vault of their gold ETFs.

Gold owners have been lucky lately, with the price up more than 20% since last September. The value of gold is measured in dollars, as the increase is less favorable to other currencies due to the exchange rate.

Gold thrives in turbulent times, which, combined with inflation, we have plenty of. Nevertheless, the price of gold fell last year after a brief spike following the outbreak of war in Ukraine. To further illustrate the anomaly, 2022 was also the year of rising interest rates.

This decline can be explained by the fact that gold as an asset class becomes less attractive when interest rates rise, as the metal does not offer a yield like bonds. In addition, the U.S. dollar strengthened. Since gold is paid for in dollars, this is usually bad for gold when purchased in other currencies, further diminishing demand for the precious metal.

The interest rate story is much more complicated. It is not so much about the state of interest rates as it is about investor expectations. Until recently, investors believed that central banks would slow the pace of rate hikes, which translated into rising stock and gold prices.

On Thursday, European Central Bank President Christine Lagarde tried to temper those investor expectations. Speaking at the World Economic Forum in Davos, she said inflation was still “far too high” and hinted that several major rate hikes were still in the works.

Those words had an effect on stocks as they fell across the board. However, Lagarde made little impression on gold investors. Gold prices rebounded slightly to above $1932 per troy ounce. By Friday morning, stocks were also moving higher.

Commodities analyst Nitesh Shah of asset manager WisdomTree suggests that Lagarde and her colleagues at the Federal Reserve will take a break later this year. “Central bankers are as good at predicting economic trends as anyone,” Shah argues. “I think you can imagine a scenario where they hold rates steady and wait a while to see what happens.”

Former U.S. Treasury Secretary Larry Summers once compared the monetary policy to the shower in an old hotel. Getting the water to the right temperature is tricky because the water comes out with a lag. If you are unlucky, you get red-hot or ice-cold water all over you. That’s why it’s wise to dip your toes in the water before taking a shower. According to Summers, monetary policy works similarly but with a lag of nine to 18 months. Waiting a while is, therefore, not such a far-fetched idea.

Shah believes a pause in rate hikes will benefit gold in the current environment. He expects a price of around $1,950 per troy ounce at the start of the year’s second half. Not a spectacular rise, but certainly a good result for investors who see gold primarily as a safe haven in uncertain times.

This safe-haven image suffered quite a blow during the Covid-19 crisis. Investors preferred the U.S. dollar to gold in the panic that followed the initial closures. Finally, in the summer of 2020, there was a run on gold that led to record prices.

Now gold prices are rising again. Interest rates and the dollar are the main factors, but there are other causes. For example, central banks around the world are stockpiling much more physical gold than usual. Countries such as Russia and China are thought to hoard gold in a bid to reduce their dependence on the U.S. dollar.

Alternatively, the cryptocurrency scandals could drive investors back into gold, although there is no evidence of this happening. After all, these cryptocurrencies are seen as digital gold, allowing investors to stop relying on the government’s money. What also gives fans of the precious metal confidence is that the prices of the companies that mine the metal are rising.

Mining companies can theoretically benefit greatly from a rising price, but it will take time for them to ramp up production. Opening a new mine is expensive and time-consuming, and there is always the risk that the price of gold will plummet just as the mine opens. The fact that prices are rising now may mean that investors believe that the price of gold will remain high for a long time.