2024 has become the year of gold, with the yellow metal defying its sceptics, surging 28% and outperforming the stock market as it rushes from record to record. However, many investors are paying little attention to these developments. This suggests prices could keep rising, though breaks are possible before a broader "gold rush" develops.
Gold’s relationship with interest rates
Gold's price has traditionally been driven by interest rates, inflation expectations and geopolitical events. However, the idea that lower rates push investors toward gold hasn't always held, as other assets have often performed better. The current rally also seems contradictory to some investors, as gold is rising despite higher interest rates, suggesting other factors are influencing the market.
A "crisis metal" and store of value
Central banks, including those in China and India, continue to buy gold to diversify reserves, though this has slowed as prices rise. However, if these countries remain buyers, rising US debt and a weakening dollar could prolong geopolitical risks. The upcoming US election also plays a role, as concerns about fiscal policy and market stability intensify. Both presidential candidates are expected to increase the national deficit, which could raise inflation risks and benefit gold. Beyond being a "crisis metal," gold also serves as a store of value, offering protection from inflationary policies.
Private investors missed the rally
In the first half of 2024, private investors showed little interest in gold, with exchange-traded funds seeing minimal inflows and even some outflows. Many of these investors focused (and continue to focus) on stocks like Nvidia, driven by the current AI hype, missing the opportunities in gold. Most private investors still view gold as a hedge against inflation and geopolitical risks.
Dawn of a new era?
From a technical perspective, gold's breakout above the former all-time high at $2,075 an ounce potentially signalled a new era. If this uptrend holds, this level may not be undercut for a while, possibly offering investors opportunities to buy into corrections and benefit in the long term from increasing demand.
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