The current environment for gold investing is particularly favourable, and this asset class is once again proving why it holds such an enduring appeal for long-term investors. Whether as a hedge against inflation, a tool for diversification, or as protection against heightened market volatility, gold is showing why it deserves a place in many portfolios today.
Why is gold investing gaining popularity in 2024?
Gold has always held a special place in the world of investing, but 2024 has seen a renewed surge in its popularity. While global equity markets have grabbed the headlines, particularly the S&P 500 Index and the ‘Magnificent Seven’ stocks, gold and gold-related equities have quietly outperformed, posting gains of over 30% so far this year (Source: RBC GAM, Bloomberg, as of September 27, 2024). This performance has been driven by several unique factors.
The U.S. Federal Reserve’s decision to cut interest rates in 2024. Low or falling interest rates have historically supported rising gold prices as the opportunity cost of owning gold decreases.
Gold is priced globally in U.S. dollars, so when the dollar weakens, gold often benefits as it becomes more affordable for international buyers.
Geopolitical uncertainty and conflict tend to increase demand for safe-haven assets like gold, as investors seek stability in turbulent times.
Beyond these factors, central banks increased their gold reserves early in the year. This was accompanied by substantial physical buying from Asia, where gold remains a favoured store of value. More recently, a resurgence of gold-backed ETF purchases has further bolstered demand.
Why is gold considered an asset class?
Gold shares very few characteristics with traditional stocks and bonds and, at its core, gold is considered a safe-haven asset. Safe-haven assets are what investors turn to when market volatility spikes or when there are growing concerns that an economy may fall into recession.
Another unique characteristic about gold is that it has been a reliable store of value for centuries, making it an attractive option for those looking to protect their wealth over time. Gold is also viewed as an excellent long-term hedge against inflation, a concern that has been on the minds of many investors lately. While inflation may erode the purchasing power of paper currencies, gold tends to hold or increase its value during inflationary periods, offering protection against inflation over the long term.
Furthermore, one of gold’s strengths is its low correlation to traditional asset classes. A small allocation to gold in a balanced portfolio can provide powerful diversification benefits.
What is the outlook for gold?
Looking ahead, many analysts maintain a positive outlook for gold and gold equities. The puzzle pieces that have driven gold’s rise in the last year—monetary policy shifts, geopolitical tensions and growing global demand—are expected to stay in place for the foreseeable future. While no one expects gold prices to rise in a straight line, the broader environment seems favourable for continued strength in the gold market.
In fact, gold recently reached an all-time high, surpassing $2,700 USD an ounce and has been one of the strongest performing asset classes this year. (Source: Source: RBC GAM, Bloomberg, as of October 30, 2024) While this rally has been impressive, we think there are a number of conditions that are likely to support these or even higher price levels as we continue into the New Year. Notably, we expect central banks to continue cutting interest rates, which is supportive of the gold price. We think that rising debt levels are also positive for this asset class and while the U.S. dollar has performed well in the last decade, we suspect that we’re nearing the end of the current cycle. Gold tends to react positively to geopolitical conflicts and there doesn’t appear to be any immediate solutions to those issues either.
While gold does face risks—such as potential changes in interest rates or shifts in investor sentiment—the overall outlook remains constructive. For investors looking to hedge against uncertainty, diversify their portfolios, or simply capture potential upside, gold remains an appealing and relevant choice.