By Grady Wulff, Tandem Securities
As the saying goes, it’s as good as gold, and that could not be more relevant than in the current market environment both locally and around the world. In 2024, finding the pot of gold at the end of a rainbow might not actually be an urban myth.
Gold has long been deemed the precious commodity that is a strong store of value. So what key drivers are behind the gold rally experienced over the last 12-months as the price of the commodity sits around all-time highs early in 2024?
The first driver is gold’s hedge against inflation, which is a tale as old as time. While inflation in the US has had a slight uptick and remains above target levels of 2 to 2-3% pending the economy in question (US and Australia, respectively), gold acts as a natural hedge against the rising effects of inflation and cost increases of everyday life.
Next up, we have rate outlook impacting the price of gold. A trend over the last 12-months has seen investors piling into ‘safe-haven’ assets at times of rate outlook uncertainty, such as after FOMC or RBA meetings, or when fresh economic data outlines inflation remaining sticky. At such times, we have seen spikes in the spot price of gold and upticks in share prices for gold explorers, miners, producers, and gold-related ETFs.
The most recent peak in the price of gold occurred on the 3rd of April as of the 5th of April (Bloomberg, 2024), where the precious commodity topped US$2300/ounce due to the weakening of the USD (which gold has an inverse correlation with), and the outlook for interest rate cuts out of the Fed in the near future given favourable economic data released, indicating inflation continues to ease.
Another factor driving the recent gold price rally is geopolitical uncertainty. When geopolitical tensions are high, demand for safe-haven assets like gold is high and therefore the price of gold rises. The ongoing war between Russia and Ukraine, rising geopolitical tensions in the red sea conflict expanding from Israel’s war with Hamas, and the US-China strategic competition instability are just a few cases of current geopolitical tensions that are contributing to the rising price of gold in 2024.
Finally, falling bond yields and a weaker USD are other contributing factors to the rising price of gold. The simple way to understand the USD-Gold relationship is that when the USD is stronger, it costs more to buy gold, thus weakening the price of the commodity, and when the USD falls, the price of gold rises as more gold can be purchased when the USD is weaker. Bonds, like gold, are deemed a ‘safe-haven’ asset during times of economic instability. With the idea of interest rate cuts on the horizon, bond and gold prices have begun to rise and yields have started falling.
Big global banks and finance houses are also weighing in their opinions of just how high the gold spot price can go by the end of 2024 with J.P. Morgan Research estimating gold will peak at US$2300/ounce in 2025, and UBS expects the price of gold to hit US$2200/ounce by the end of 2024, while locally, ANZ economists also believe gold will hit US$2200/ounce before the year end.
So how can you invest in gold in 2024?
Gold explorers, miners and producers are one way of adding gold exposure to your portfolio. Some gold miners to consider in2024 include: Bellevue Gold (ASX:BGL), Spartan Resources (ASX:SPR), Ramelius Resources (ASX:RMS), Gold Road Resources (ASX:GOR) and Orecorp (ASX:ORR).
Buying physical gold through gold coins, gold bars or gold jewellery from a bullion dealer or jeweller is another way to invest in gold. Doing so has the advantage of giving investors full control of their own gold, but the downside is needing safes or secure methods of storage.
And Gold ETFs are another way to gain exposure. Gold ETFs are shares or units in physical gold bars, or gold miners, or gold producers that trade on the exchange.
With all that talk on gold, there is another commodity that is up for consideration in 2024 but is flying under the radar. Is it time to consider silver?
In 2024, we can’t forget about the stepsister to gold, silver. For investors around the world, silver has been a forgotten stepsister to gold over the years, but the price of the commodity is trading higher over the last year. Thus, it is another investment opportunity to consider in the market landscape for 2024.
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