The impact of rising gold prices on Azerbaijan depends on 'Black Gold' - economists

On April 12, 2024, the global price of gold soared to unprecedented levels, surpassing $1,031.1 per 2 ounces (400 grams) for the first time in history. This surge marks a staggering 25 percent increase over the past six months, triggering both intrigue and concern among economists worldwide.

Economist Natig Jafarli, speaking to RFE, views the spike in gold prices as a harbinger of impending economic crisis. Jafarli asserts that historically, escalating gold prices have foreshadowed turbulent times in financial markets. He explains, "Since gold is considered a safe haven, investors flock to it as a means of protecting their assets during periods of significant crisis."

Jafarli's concerns are underscored by Azerbaijan's vulnerability to global economic fluctuations, primarily due to its heavy reliance on energy exports. With approximately 90 percent of its exports comprising energy products, the nation's economy is acutely susceptible to downturns in global oil markets. Jafarli warns that any economic bottlenecks on the world stage could precipitate a decline in oil demand, exacerbating Azerbaijan's economic woes.

Moreover, Jafarli highlights the inadequacy of Azerbaijan's economic preparedness, attributing it to lost time and missed opportunities in the 2000s. He calls for proactive measures from the government to mitigate potential fallout, advocating for tax incentives and regulatory reforms to stimulate economic activity.

Contrary to Jafarli's gloomy forecast, Vugar Bayramov, a member of the Milli Majlis Committee on Economy, Industry and Business, gives a more optimistic assessment. Bayramov attributes the surge in gold demand to investors seeking safer investment avenues in the aftermath of geopolitical tensions, such as the Russian-Ukrainian conflict. He downplays concerns of an imminent global recession, citing sustained growth trends and manageable inflation rates.

Bayramov contends that Azerbaijan remains relatively insulated from external economic shocks, buoyed by robust oil prices hovering around $90 per barrel for Brent crude. He emphasizes that the current oil prices have yet to impede the country's foreign exchange revenues, affirming confidence in meeting projected fiscal targets for 2024.

However, Bayramov acknowledges the fragility of the global economic landscape, acknowledging the potential emergence of risks amid lingering geopolitical uncertainties. He underscores the importance of monitoring oil market dynamics in light of rising gold prices, recognizing the pivotal role of oil revenue in Azerbaijan's economic stability.

 While economists diverge in their assessments of the implications of surging gold prices, one thing remains clear: the global economy stands at a crossroads, teetering between growth and uncertainty. As policymakers navigate this precarious terrain, the prudent management of economic levers will be imperative to safeguarding national prosperity amidst evolving global dynamics.