In 2024 the stars have aligned for those investors who trust in one of the most traditional assets that can be found in the market: gold. The precious metal outperforms all the main listed asset classes, with a revaluation that is close to 32% since the first day of the year. The price increases have ended up taking the metal up prices that had never been touched before: $2,700 per ouncea new all-time high that, for many analysts, will not stop the rally it is experiencing. Geopolitical uncertainty, the elections in the United States, the lowering of rates by central banks and the increase in demand by the latter are the main arguments in favor of new increases in the price of gold.
The break of gold’s new all-time highs is explained by a combination of factors that have created the perfect context for the metal to skyrocket in price. Gold is the refuge par excellence for the markets, an asset that is used to diversify the portfolio and cover the possible losses that riskier assets leave when things get bad. Although stock markets and fixed income are having a good year in 2024, gold far outperforms them, encouraged, in part, by the geopolitical uncertainty that continues to exist in the world. The war in Ukraine, and the conflict in the Middle East, continue to be a major source of uncertainty for the markets.
Given this, many investors have chosen to invest in gold, but there are especially important ones that have triggered their purchases: central banks. According to the data it handles Bloomberg, In recent quarters there has been a historic purchase of gold by central banksand several central bankers have confirmed in recent days that they continue to 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 in Miami organized by the London Gold Market Association, three heavyweights in their countries’ central banks have acknowledged their intention to continue increasing their reserves of the precious metal. “In the context in which we are now, of lower rates, political tensions and elections in the United States, there is a lot of uncertainty, and it is likely that our gold reserve will increase,” said Joaquín Tapia, director of international reserves at the Bank. from Mexico. Tapia’s comments were supported by similar speeches by his counterparts in Mongolia and the Czech Republic. The reality is that the metal has become one of the favorite assets for investors in the East and the West.
Compelling reasons in favor of the precious metal
The arguments presented by Mexico’s central banker are repeated by analysts. The purchases of central banks are, in themselves, a compelling reason that explains the price increases that have occurred, but behind everything is the attractiveness of the metal as a refuge against uncertainty. And now, uncertainty is high, with two open wars with the potential to skyrocket the prices of key raw materials for the economy, such as gas and oil, and elections in the United States with historical 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 they are central banks. Before They bought bonds, equities, even, and now they have returned to metal. Now that we are going to see interest rates fall in the United States, this is generally a good thing for gold. And if the dollar remains relatively low against its main trading partners, it 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 how “gold is one of our favorite assets. We have been bullish on gold for quite some time and continue to be so, as we believe the rally is not over yet. There is many purchases by Asian investors, by central banks and now by Western investors through exchange-traded funds,” highlights 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 rally in precious metal prices should not end after breaking new all-time highs. “India’s gold imports, which soared in August following the tariff cut, have normalized in September. While this increases the potential to see declines in the metal, we still see a positive fundamental backdrop for gold, with a cooling US economy and prospects of lower rates, which could lead more Western investors to flock to the precious metal,” Menke notes.
Investors would be following the logic that praises gold as an attractive asset when the economy cools, and The Fed’s rate cut only increases the metal’s attractiveness, as other assets, such as fixed income, reduce their returns for investors as a result of lower rates.
A historical source of high profitability
At first glance it might seem that gold, as a safe haven asset, cannot compete in the long term with the returns offered by riskier assets, such as the US stock market. However, Edmund Shing reminds us 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 that, even though it doesn’t give any return. In the end, 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 still present,” Shing recalls.
The data is striking: not only has gold outperformed such a profitable asset in the long term as the S&P 500; In the last 24 years, it has far surpassed it, with an annualized return of almost 9.5% for the precious metal, compared to the 5.9% annualized return that the US stock market index has offered. To get an idea of what a good investment the metal has been, the Eurostoxx 50 on the European stock market reaped 0.11% annualized in the same period, the dollar 0.14% annualized, and the emerging stock market 3.36%. annualized, well below the returns that the metal has left.
#fetish #asset #East #West #central #banks #gold #hits #time
