Hereâs Why Gold Is At A Record High
Topline
The U.S. looks all but certain to dodge a recession, American stock indexes are trading at record levels and even riskier investments like bitcoin are at their highest prices ever, but gold, arguably the worldâs oldest investmentâoften viewed as a hedge against market losses elsewhereâkeeps gaining value.
Gold prices have quintupled over the last two decades.
Key Facts
Gold traded at an all-time high of $2,195 per ounce Friday, extending its year-to-date gain to 5% and 12-month gain to a blistering 19%, moving in the same direction as the American benchmark stock index S&P 500âs 8% year-to-date and 31% 12-month return.
The gold rush may come as a surprise for American investors, considering the âsafe havenâ precious metalâs record run-up does not coincide with prior events which sparked all-time highs for gold, such as the late 2000s financial crisis and the Covid-19 pandemic.
A key factor behind goldâs rally is things are looking far less bright for many non-U.S. markets: The U.S.â 2.1% projected economic growth this year outpaces the sub-1% projected growth of other developed economies like Germany, Japan and the United Kingdomâwhile stocks listed on large foreign exchanges have largely underperformed their American counterparts, with Hong Kongâs Hang Seng index losing 18% over the last year and Britainâs FTSE 100 down 3%.
âThe western investor is not behindâ the gold rally, according to Metals Daily CEO Ross Norman, attributing the gains to âphenomenalâ demand from Chinese investors looking to hedge against the potential economic instability of the worldâs second-largest economy amid a commercial real estate crisis in China.
Within the U.S., there are several other explanations for the gold bump, as some investors look for ways to bet against the potential of worse-than-expected inflation, reposition their portfolios following the stock surge and safeguard against geopolitical instability, with issues such as the wars between Israel and Hamas and Russia and Ukraine, along with Novemberâs presidential election looming on the minds of investors.
What To Watch For
Incoming cuts to interest rates, which will cause yields for U.S. government bonds to fall and thus make the returns less appealing of another typically safe asset class. Five-decade high gold purchases by central banks globally and the potential for Republican presidential candidate Donald Trump to heighten tensions between the U.S. and China are also all reasons to remain bullish on gold moving forward, Solita Marcelli, UBS Global Wealth Managementâs chief investment officer, Americas, said in a Friday note to clients.
Big Number
$3.3 trillion. Thatâs the amount of gold held by investors, according to JPMorgan Chase strategist Nikolaos Panigirtzoglou. That accounts for about 1.4% of the value of all global investments.
Surprising Fact
About half of all gold shipments in January went to Hong Kong and mainland China, according to UBS.
Key Background
Goldâs popularity as an investment tracks its centuries-long history of retaining value through bouts of inflation and periods of conflict across the globe. American investorsâ faith in the precious metal hit its highest level since 2012 last year, and a Gallup poll showed respondents were more confident investing in gold than stocks. Goldâs rally coincides with a fairly flat U.S. dollar, which also typically gains value during times of market distress; the DXY, which tracks the dollar against a basket of other top global currencies, is up 1% year-to-date and down 2% over the last year. Gold has added 394% in value over the past 20 years, according to FactSet data, below the S&P 500âs 522% return over the two-decade period, but still a remarkable feat considering gold is an inorganic material without the potential to return profits to shareholders as a stock would.
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