How gold became one of the world’s most important investments in 2024

• The price of gold reached all-time highs this week.
• Falling interest rates and rising geopolitical tensions increase gold’s appeal as a safe haven asset.
• Since gold has outperformed stock prices since October 2022, Wall Street expects the rally to continue.

the price of gold has skyrocketed this year.

The precious metal hit a record high of $2,772 per troy ounce this week and has risen in six of the last seven weeks.

With year-to-date gains of around 33%, gold returns have outperformed the broader stock market, including high-tech. Nasdaq 100by about 10 percentage points.

And since the equity bull market began in October 2022, gold has outperformed equity gains, returning 67% versus the S&P 500 return of around 63%, according to YCharts data.

These superior returns make the metal one of the best investments in the world.

The largest gold ETF, SPDR Gold Shares, has $78 billion in assets under management and has received about $5 billion in inflows in the past six months, according to data from ETF.com.

Physical gold is also having its moment. Costco has consistently sold gold bars when available on its website and Wells Fargo estimates that Costco sells up to $200 million in gold bars and silver coins to its members every month.

It’s been a perfect storm for the yellow metal and the outlook suggests more gains are on the way.

This is what is happening.

Central bank demand

Global central banks have been buying gold in recent years.

According to the World Gold Council, central banks bought a record 483 tons of gold in the first half of the year. The central banks of Türkiye, India and China topped the list of the largest buyers.

Part of the increase in demand is coming from countries that want to diversify their holdings away from the US dollar.

“We believe that the tripling of central bank purchases since mid-2022 due to fears of financial sanctions and US sovereign debt is structural and will continue,” Goldman Sachs said in a note last month.

This dynamic has played out since Russia invaded Ukraine in 2022, when the United States sought to inflict maximum economic damage on Russia through sanctions. But it is more difficult to implement sanctions against a country that is less dependent on the dollar, and one way to become less dependent on the dollar is to buy gold.

It’s a dynamic the United States should monitor closely, according to economist Mohamed El-Erian.

Erian wrote in an opinion piece for the Financial Times this week that gold’s persistent rise “captures an increasingly persistent behavioral trend between China and ‘middle power’ countries.”

“There is also interest in exploring possible alternatives to the dollar-based payments system that has been at the core of the international architecture for some 80 years.”

Russia has had some success in this, managing to pull its economy out of a full recession after the United States imposed wide-ranging sanctions in 2022.

Russia’s ability to steer its de-dollarized economy away from a crisis could give confidence to other countries to reduce their dependence on the dollar, ultimately benefiting gold.

“What is at stake here is not only the erosion of the dominant role of the dollar but also a gradual change in the functioning of the global system,” El-Erian said. “As it develops deeper roots, this risks materially fragmenting the global system and eroding the international influence of the dollar and the US financial system.

Geopolitical tensions

gold is considered a safe haven asset due to its long history as a stable store of value.

So when geopolitical tensions rise, investors tend to flock to the shiny metal, and right now there’s no shortage of reasons to worry.

From Russia’s war against Ukraine to escalating fighting in the Middle East and China’s long-standing threat against Taiwan independence, geopolitical tensions are rising, not falling.

What’s more, soaring U.S. debt means that Treasuries—another historic safe-haven asset—may no longer be so risk-free.

“Gold appears to be the last ‘safe haven’ asset standing, incentivizing traders, including central banks, to increase exposure.” Bank of America said in a note this month.

Trump’s trade

He Trump trade has gained momentum recently as the former president’s chances of winning the election have increased and gold has been a big beneficiary.

This is because a potential Trump presidency is expected to be accompanied by a rising government deficit and a rapidly growing debt pile, which would further raise concerns about a rebound in inflation and the sustainability of the US dollar.

“If you are concerned about fiscal waste, financial repression and attacks on the independence of the Federal Reserve, gold would be an attractive asset,” economist Davix Oxley of Capital Economics said on Friday.

Even if Trump doesn’t win the election, the deficit is likely to grow, setting gold up for further gains, according to Interactive Brokers chief strategist Steve Sosnick.

“It’s not that either candidate is preaching fiscal discipline, and the Fed seems willing to keep cutting even if inflation remains a little above target. So there’s the idea that gold could be an alternative.” viable if rates rise and the economy remains strong. And if the economy is not healthy, it could still be a good store of value,” Sosnick told Business Insider.”

Interest rates

According to data from the World Gold Council, falling interest rates have historically benefited gold prices, with the commodity rising as much as 10% in the six months following the Federal Reserve’s first rate cut.

With the Federal Reserve expected to cut interest rates several times over the next year, lower rates should serve as a tailwind for gold prices.

While interest rates actually increased since the Federal Reserve’s first rate cut Last month, as the 10-year Treasury yield hit its highest level since July this week, gold prices have continued to rise.

This is a sign that gold investors are more focused on the path of global interest rates, which are pointing lower as global central banks appear set to ease monetary policy.

The People’s Bank of China cut its rates by 25 basis points this week, while the Bank of Canada cut its rates by 50 basis points. The European Central Commission cut rates by 25 basis points last week and economists say they see the Bank of England willing to implement further rate cuts than previously expected by the markets.