Gold hits 1.1 million UZS per gram in Uzbekistan: Key factors explained

The Central Bank of Uzbekistan updated the prices of gold bars and commemorative coins on October 16, marking a notable increase of 1 million 125 thousand UZS for one gram of gold. Currently, a 5-gram gold bar costs 5 million 625 thousand UZS, and a 10-gram commemorative coin is valued at 11 million 249 thousand som. Compared to the start of the year, gold prices have risen by 32.5%, and by 45.3% compared to the same period last year.

It is important to note that the Central Bank of Uzbekistan introduced commemorative coins made from gold and silver in 2018. Since November 2020, residents have also been able to store their savings in the form of gold bars, with the Central Bank selling 5, 10, 20, and 50-gram bars through commercial banks.

The price of gold bars is subject to daily fluctuations based on international precious metals market conditions, meaning that the prices can change frequently.

Factors Behind Rising Gold Prices

At the beginning of this year, the price of one troy ounce of gold was $2,068. It has since increased to $2,677, representing a rise of 29.4%. Several factors may be influencing this sharp increase in gold prices:

1. Geopolitical Tensions and Economic Instability: The deteriorating geopolitical landscape and economic uncertainty—such as wars, political crises, or financial turmoil—tend to drive up gold prices. Gold is often seen as a "safe haven," and demand rises during turbulent times. Current conflicts in the Middle East and the ongoing Russia-Ukraine war have contributed to increased gold prices. As uncertainty about the future looms, investors are more likely to turn to gold as a stable asset.
2. U.S. Dollar Exchange Rate and Interest Rate Expectations: Gold prices are typically denominated in U.S. dollars. When interest rates decrease, the dollar usually weakens, making gold more attractive compared to other currencies. Recently, the U.S. Federal Reserve lowered interest rates by 50 basis points to a range of 4.75% to 5.25%. Market participants anticipate further rate cuts, prompting investors to favor gold over lower-yielding securities.
3. Central Bank Policies: Decisions made by major central banks regarding gold reserves also impact prices. For instance, central banks in Turkey, India, Poland, and China have been purchasing significant amounts of gold this year, bolstering market demand.

The Benefits of Rising Gold Prices for Uzbekistan

As of October 1, gold accounted for nearly 77.5% of Uzbekistan's official reserves. The rise in gold prices enhances the value of the country's international assets. Uzbekistan is one of the largest gold producers and exporters globally, having extracted 100 tons of gold last year and sold it for $8.2 billion. The increase in gold prices could positively impact export revenues and improve the country's worsening trade balance, potentially reducing budget deficits.

Moreover, rising gold prices may slow or halt the depreciation of the Uzbek UZS against the dollar and other currencies.

Is Investing in Gold Beneficial for Ordinary Uzbeks?

Many Uzbeks tend to prefer holding their savings in dollars or investing in real estate. But how valuable is gold as a savings instrument? For example, a 5-gram gold bar that was priced at 3 million 426 thousand UZS when it was first sold in November 2020 now costs 5 million 625 thousand UZS — a 64% increase over four years.

According to Goldprice.com, gold prices have risen in 11 of the past 16 years when calculated in dollars. Notably, gold has appreciated by 78% over five years and by 534% over 20 years. Over the last two decades, gold has proven to be a superior savings instrument compared to stocks and bonds. Many experts consider current gold prices to be among the best periods for this precious metal.

Predicting future dynamics of gold prices remains challenging, as they are directly linked to global geopolitical conditions, the dollar's exchange rate, inflation, and interest rates set by the Federal Reserve.