The Gold Rally Can’t Be Stopped: How to Invest Wisely
Gold’s remarkable ascent in the market is garnering significant attention, and many analysts believe this rally could persist through 2025. As of recent reports, gold futures have surged to $2,925.10 an ounce, yielding a staggering 42% return over the past 12 months—more than double the S&P 500 index’s 19% return, inclusive of reinvested dividends. This performance is especially notable for a commodity that typically doesn’t generate earnings or accrue interest for its holders.
Understanding the Rally
Gold’s price fluctuations are often deemed unpredictable, supported by a combination of contradictory factors. Traditionally seen as a defensive asset, gold has been rising concurrently with the stock market and a rebounding economy. Furthermore, it typically moves inversely to the dollar, yet recent trends show it defying this correlation. Gold has long been regarded as a hedge against inflation; however, its notable gains have occurred during a period of decelerating price increases.
Despite such inconsistencies, experts are not urging investors to divest from gold. David Jane, Portfolio Manager at Premier Miton, stated, “It’s just a pet rock, but I’m not selling it. You can’t pin down its price. I’m not going to cut and run.”
Golden Foundations
Gold’s historical status as a reliable store of value is underscored by its limited supply. According to the World Gold Council, the cumulative amount of gold mined globally could be melted into a cube measuring merely 25 yards on each side. Annual increases in gold supply range only between 1% to 2%, further amplifying its allure as a scarce asset.
Recently, demand for gold has surged, particularly from global central banks seeking diversity in their reserves. Central banks consistently raised their gold purchases exceeding 1,000 tons for a third consecutive year in 2024, influenced significantly by geopolitical tensions such as the recent conflicts in Ukraine. A notable interest in gold from nations like China and India highlights this trend.
As Philip Newman from Metals Focus explains, central banks can’t ignore the prices they pay for gold. However, as their holdings appreciate, it emboldens them to acquire more, particularly when prices dip. “Gold has a floor level of support that is strong and rising,” Newman asserts.
Retail Demand and Geopolitical Climate
Retail interest in gold is also on the rise, with a reported 9% increase in global jewelry spending last year, as outlined by the World Gold Council. In China, insurance funds have been encouraged to accumulate gold, reflecting households’ interest in the metal following economic turbulence, particularly during the pandemic.
Gold typically thrives during times of global uncertainty, with tensions sometimes fueling its demand regardless of the stock market’s performance. Krishan Gopaul from the World Gold Council mentions, “Gold plays well when there are tensions in the world.”
The Forces Driving Prices Higher
Several additional factors have contributed to gold’s soaring prices. Anticipation regarding potential U.S. taxes on gold imports has escalated costs related to its physical delivery, creating a “short squeeze” scenario where investors betting against gold were abruptly forced to change their positions, thus pushing prices further upward. According to Gavekal Research, these dynamics reinforce the fundamental strength of the ongoing gold bull market.
Financial expert David Jane posits that excess liquidity may also be driving interest in gold, marking a shift from fear to speculation. He notes, “The positive correlation between gold and equities suggests to me that it’s excess liquidity around the world that’s getting sucked into gold.” As of now, analysts are optimistic, with forecasts for gold reaching upwards of $3,000 per ounce in the near future.
Investment Avenues
Investing in gold can be straightforward, with options ranging from buying physical bars or coins to purchasing shares in gold exchange-traded funds (ETFs) like the SPDR Gold Shares ETF or the iShares Gold Trust. Mining stocks also present attractive opportunities; while share prices in this sector have trailed behind gold prices over recent years, analysts believe they’re poised for growth. For instance, the VanEck Gold Miners ETF has shown promising returns this year.
For those considering alternatives, silver offers potential, especially if gold ascends to the $3,000 mark, inspiring a potential switch among investors. The iShares Silver Trust is an option for gaining exposure to this metal.
Conclusion
As gold continues its robust rally, it remains a compelling choice for diversifying investment portfolios. With factors ranging from global central bank purchases, rising retail demand, and geopolitical tensions all influencing its price, the outlook for gold remains bright. For investors pondering options in the precious metals sector, now may be the ideal time to explore ways to incorporate gold into their financial strategies.