In 2024, the stars have aligned for investors who place their trust in one of the market’s most traditional assets: gold. The precious metal outperforms all major listed asset classes, with a revaluation close to 32% since the first day of the year. Price increases ended up pushing the metal higher prices that had never been touched before: $2,700 per ouncea new historic high which, for many analysts, will not stop the rally it is experiencing. Geopolitical uncertainty, the elections in the United States, the reduction of rates by central banks and the increase in demand from the latter are the main arguments in favor of further increases in the price of gold.
The breakout of gold’s new all-time highs can be explained by a combination of factors that created the ideal context for the price of the metal to skyrocket. Gold is the ultimate safe haven of the markets, an asset that serves to diversify the portfolio and cover possible losses that riskier assets leave when things go wrong. Even though stock markets and fixed income have a good year in 2024, gold is significantly outperforming them, encouraged in part by the geopolitical uncertainty that continues to reign around the world. The war in Ukraine and the conflict in the Middle East remain a major source of uncertainty for the markets.
This is why many investors have chosen to invest in gold, but there are some in particular who have triggered their purchases: central banks. Depending on the data it processes Bloomberg, In recent quarters, central banks have purchased unprecedented amounts of gold.and several central bankers have confirmed in recent days that they still intend to increase their gold reserves in the coming months.
This is the case of the central banks of Mexico, Mongolia and the Czech Republic. This week, at a conference organized in Miami by the London Gold Market Association, three heavyweights of their countries’ central banks acknowledged their intention to continue increasing their reserves of the precious metal. “In the current environment of falling interest rates, political tensions and elections in the United States, there is a lot of uncertainty and it is likely that our gold reserves will increase” , said Joaquín Tapia, director of international reserves. at the Bank of Mexico. Tapia’s comments were supported by similar speeches from his counterparts in Mongolia and the Czech Republic. The reality is that the metal has become one of the favorite assets of investors in the East and West.
Compelling reasons in favor of the precious metal
The arguments put forward by the Mexican central banker are taken up by analysts. Central bank purchases are, in themselves, a compelling reason for the price increases that have occurred, but behind it all is the metal’s appeal as a refuge from uncertainty. And now the uncertainty is great, with two open wars likely to send prices of key commodities for the economy, like gas and oil, skyrocketing, and elections in the United States with historic precedents for generating volatility in the market.
“Commodities, precious metals and gold, in particular, have had a very strong year despite the Federal Reserve’s rate hikes. The reason is that there are new buyers of gold, and this are central banks Before, they bought bonds, even stocks, and now they have returned to metal. Now that we’re going to see interest rates fall in the US, that’s generally a good thing for gold. And if the dollar remains relatively low against its main trading partners, this will not be a headache for gold,” explains Nannette Hechler-Fayd’herbe, investment director for EMEA at Lombard Odier.
Edmund Shing, chief investment officer at BNP Paribas WM, explains that “gold is one of our favorite assets. We have been bullish on gold for some time and continue to be, as we believe the rally is not over yet. “numerous purchases by Asian investors, by central banks and now by Western investors through exchange-traded funds”, underlines the expert, confirming the attractiveness of the metal for investors from all over the planet.
For his part, Carsten Menke, head of Next Generation analysis at Julius Baer, also believes that the rise in precious metal prices is unlikely to stop after reaching new all-time highs. “India’s gold imports, which soared in August following the reduction in customs duties, normalized in September. While this increases the metal’s downside potential, we still see a positive fundamental backdrop for gold, with the US economy slowing and the outlook lower. interest rates, which could encourage more Western investors to flock to the precious metal,” notes Menke.
Investors would follow the logic that touts gold as an attractive asset when the economy cools, and The Fed’s rate cut only increases the attractiveness of the metal, as other assets, such as fixed income, reduce their returns for investors due to falling rates.
A historic source of high profitability
At first glance, it may seem that gold, as a safe haven, cannot compete in the long term with the returns offered by riskier assets, such as the US stock market. However, Edmund Shing points out that this perception is a mistake: “Since 2000, gold has been the most profitable asset class among the majors, better than the stock market, bonds, real estate… anything . And this, even if he gives no feedback. Ultimately, it’s a great asset to have to store value; it protects you against inflation, regulatory changes, political crises… anything,” he explains. “In the world we live in, with so much political uncertainty, this is always present ” Shing remembers.
The data is striking: not only has gold outperformed such a profitable long-term asset as the S&P 500; Over the past 24 years, it has far exceeded it, with an annualized return of almost 9.5% for the precious metal, compared to the 5.9% annualized return offered by the US stock index. To get an idea of the metal’s good investment, the Eurostoxx 50 on the European stock market collected 0.11% annualized over the same period, the dollar 0.14% annualized and the emerging stock market 3.36%. below the yields that the metal left.
