Topline
Gold prices continue to skyrocket, closing last week at another record high, as several factors help boost the precious metal which has actually outperformed the blistering stock market in 2024.
Key Facts
Spot gold prices ended Friday at a new record of $2.622 per troy ounce in New York, according to FactSet data, extending its year-to-date gain to 27.1%, topping the U.S. benchmark S&P 500 stock index’s balmy 20.8% return, including reinvested dividends.
Gold is on track for its best return since 2010, outpacing even 2020’s 25.1% gain as the COVID-19 pandemic accelerated doomsday investment bets.
The most recent lift to gold prices was the Federal Reserve’s Wednesday decision to institute the first interest rate cut in 4.5 years, which provides a pair of tailwinds for the metal, according to conventional wisdom, as gold prices rose 2% from Tuesday to Friday.
Lower rates of return on other non-stock assets which offer fixed payments tied to the Fed-set interest rates, like short-dated government bonds and certificates of deposit (CDs), may make gold a more popular diversification option, and gold is considered perhaps the most popular hedge against inflation, meaning if the Fed acted too swiftly and U.S. inflation gets worse again, gold prices should benefit.
But it’s not just U.S. monetary policy boosting gold, as experts tie the increased appetite for gold to geopolitical risks globally, including from the U.S. election and the ongoing wars between Russia and Ukraine and Israel and Hamas.
Surprising Fact
The volume of global central bank purchases of gold have tripled since Russia invaded Ukraine in early 2022, according to Goldman Sachs, which also named concerns over climbing U.S. federal debt and the potential for increased institutional capital into gold exchange-traded funds (ETFs) as a driver of higher gold prices.
Big Number
811%. That’s how much gold prices have soared since the turn of the millennium, dwarfing the S&P’s 517% return since Dec. 31, 1999.
Key Background
The two largest years for central bank gold purchases on record were 2022 and 2023, according to the Wall Street Journal. China was the biggest buyer of the commodity during that stretch, though the People’s Bank of China declined to bolster its gold reserves from May to August, ending an 18-month streak of gold purchases. Gold prices typically increase during times of uncertainty as investors look to clutch onto the metal which has been viewed as a source of value for centuries, outlasting countless currency changes and conflicts. Gold, which traded as low as $255 per troy ounce in 2001, has enjoyed three distinct rallies since 2000, including around the 2008 financial crisis, around the COVID-19 pandemic and the last two years’ global inflation bout. The latest rally comes as most experts believe the odds of a U.S. recession is unlikely to occur imminently, eating into gold’s historic boost from heightened downturn fears.
Read More: Why Are Gold Prices So High? Rate Cut Just The Start Of Bullish Backdrop