So far in 2024, gold has experienced a remarkable price surge. Characterized by a series of record highs, including a brief all-time high above $2,400 per ounce in April, this price growth marks a significant departure from the relatively steady trajectory that gold had maintained for some time.¹

A variety of factors underpins the recent surge in gold prices. Chief among these is the anticipation of interest rate cuts by the U.S. Federal Reserve, as signaled by policymakers amidst concerns over inflationary pressures and economic growth prospects. Furthermore, the unprecedented buying spree witnessed among central banks in recent years and demand from retail investors have also demonstrated a growing appetite for gold.

As gold continues its ascent to new heights, let’s take a look at how gold got here and what the rest of the year might hold for the yellow metal. After all, the outlook for gold remains a topic of keen interest and speculation among investors and analysts alike.

The Role of Expected Interest Rate Cuts

The recent surge in gold prices has been closely linked to signals from the U.S. Federal Reserve about an anticipated series of interest rate cuts to come later this year. The expected pivot by policymakers towards a more accommodative monetary policy stance has resonated strongly with gold investors, who traditionally view lower interest rates as a bullish sign for gold.²

Historically, there has been an inverse relationship between interest rates and gold prices. When interest rates are low, gold prices rise. And conversely, rising interest rates tend to depress the price of gold in favour of yield-bearing assets, such as bonds.³

Despite expectations of impending rate cuts by the Fed, gold prices have defied conventional market dynamics. Year over year, gold is up more than 16% so far in 2024.⁴ This resilience can be attributed to lingering concerns over inflation and economic uncertainty, which has sustained demand for gold as a safe-haven asset.⁵

Central Bank Buying Spree

Geopolitical tensions and shifts in global monetary policy have also contributed to the rise in gold prices. Central banks around the world, including heavyweights like China, have been accumulating gold reserves at a record pace.

While gold possesses an enduring appeal as a strategic reserve asset, the recent spate of central bank gold buying reflects a broader trend of diversification away from traditional reserve currencies, such as the U.S. dollar, and a hedging strategy against ongoing geopolitical uncertainties and economic risks.⁶

Analysis of central bank data reveals a significant uptick in gold purchases in recent years, with central banks collectively acquiring over 1,000 tonnes of gold in 2022 and 2023 alone. This surge in demand represents more than double the net purchases observed in 2021, according to data from the World Gold Council. Notably, the People’s Bank of China emerged as a leading player in this buying, accounting for over 20% of central bank purchases in 2023.⁷

China’s aggressive accumulation of gold reserves reflects its strategic objectives and concerns over the dominance of the U.S. dollar in the global financial system. Due to ongoing geopolitical tensions between the world’s two largest economies, China has sought to reduce its exposure to the U.S. dollar by diversifying its reserves into alternative assets like gold. This shift aligns with China’s broader efforts to enhance its economic resilience and mitigate the potential impact of economic sanctions imposed by the United States.⁸

Retail Demand and Market Sentiment

The recent surge in gold prices has not been limited to institutional investors and central banks. Everyday investors have also shown a growing interest in acquiring gold as a hedge for their portfolios.⁹ This surge in retail demand for gold underscores the precious metal’s enduring appeal as a tangible asset, offering stability and security.

Many factors driving individual investors towards gold are the same driving institutions: inflation, geopolitical tensions, and the potential for market downturns. As traditional safe-haven assets like bonds offer diminishing yields amidst expectations of interest rate cuts, retail investors are increasingly interested in gold as a reliable store of value and as a hedge against currency depreciation.

Even retail giants like Costco and Walmart have capitalized on this growing demand for gold by offering physical gold products to consumers. Costco, in particular, has seen a gold rush of its own, with its 1-ounce gold bars often selling out within hours of becoming available on its website.¹⁰

Survey data further corroborates the shifting sentiment toward gold as a long-term investment among individual investors. According to Gallup, 26% of Americans viewed gold as the best long-term investment in 2023, up from 15% in the previous year.¹¹ This growing preference for gold over traditional investment vehicles like stocks underscores retail investors’ increasing recognition of gold’s role as a safe-haven asset and a hedge against economic uncertainty.

The Outlook for Gold in 2024

As investors look ahead to the remainder of 2024, the outlook for gold prices remains influenced by a number of factors. Ongoing conflicts, trade disputes, and geopolitical rivalries could continue to fuel demand for gold as a safe-haven asset, providing support for prices amidst heightened volatility in global markets.

Gold as a hedge against economic uncertainty reinforces its appeal to investors seeking to protect their wealth. Unlike stocks and bonds that can fluctuate with financial cycles, gold—with its intrinsic qualities of scarcity and universality—offers a timeless hedge against systemic risks and geopolitical uncertainties.

Incorporating gold into a well-balanced investment portfolio can help investors mitigate downside risk and enhance portfolio resilience against adverse market conditions. By diversifying across asset classes, including gold, investors can reduce risk and enhance the possibility of long-term returns, regardless of prevailing market conditions.

Investing in Global Materials & Mining with BASE ETF

Looking for better yields in the materials and mining sector with less risk? The opportunity may be one (covered) call away.

With the Evolve Global Materials & Mining Enhanced Yield Index Fund (BASE ETF), investors benefit from global exposure to materials and mining stocks, with the added value of a covered call strategy applied on up to 33% of the portfolio. Covered call options have the potential to provide extra income and help hedge long stock positions. Access this sector and give your portfolio a solid BASE.

For more blogs like this, as well as insight on investing and investment products, sign up for our weekly newsletter here.

 

Sources

1. Anil, A. & Shivaprasad, A., “Gold surges as Middle East tensions spur safe-haven rush,” Reuters, April 12, 2024; https://www.reuters.com/markets/commodities/gold-prices-hit-record-highs-safe-haven-demand-2024-04-12/
2. “Gold Prices Hit Record Highs. What’s Behind the Surge?,” WTTW News, April 9, 2024; https://news.wttw.com/2024/04/09/gold-prices-hit-record-highs-what-s-behind-surge
3. DeJesus, T., “What Drives the Price of Gold?,” Money, February 14, 2024; https://money.com/what-drives-the-price-of-gold/
4. “Gold Prices Hit Record Highs. What’s Behind the Surge?,” WTTW News, April 9, 2024; https://news.wttw.com/2024/04/09/gold-prices-hit-record-highs-what-s-behind-surge
5. Burton, M., Ryan, J. & Yue Li, Y, “The Gold Market Hunts for Answers Behind Bullion’s Sudden Surge,” BNN Bloomberg, April 7, 2024; https://www.bnnbloomberg.ca/the-gold-market-hunts-for-answers-behind-bullion-s-sudden-surge-1.2056071
6. “Central Bank Gold Purchases in Q1 2023; 228.4 Tonnes,” Toponline4u, September 16, 2023; https://toponline4u.com/central-bank-gold-purchases-in-q1-2023-228-4-tonnes/
7. Dorn, A., “Gold prices are hitting record highs; what’s driving the surge?,” NewsNation, March 29, 2024; https://www.newsnationnow.com/business/your-money/gold-record-highs/
8. “Gold Prices Hit Record Highs. What’s Behind the Surge?,” WTTW News, April 9, 2024; https://news.wttw.com/2024/04/09/gold-prices-hit-record-highs-what-s-behind-surge
9. Zahn, M., “Gold prices hit a record high. What’s behind the surge?,” ABC News, April 12, 2024; https://abcnews.go.com/Business/gold-prices-hit-record-high-surge/story?id=109160900
10. “Costco is seeing a gold rush. What’s behind the demand for its 1-ounce gold bars?,” The Associated Press, October 4, 2023; https://apnews.com/article/costco-gold-bars-demand-precious-metal-investment-5ea90e851227803968856e299e721fd5
11. Dorn, A., “Gold prices are hitting record highs; what’s driving the surge?,” NewsNation, March 29, 2024; https://www.newsnationnow.com/business/your-money/gold-record-highs/

Header Image Source: Getty Images Credit: Lemon_tm

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.
Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.