No two ways about it. Gold refuses to lose its shine.
The yellow metal is up 29 percent year-to-date, last clocking in at $2,680 an ounce. Gold has been lifted by a number of forces so far in 2024, according to World Gold Council chief market strategist Joseph Cavatoni, most notably of late by those long-awaited Federal Reserve rate cuts. In his view, the Fed’s recent 50 basis point cut has boosted gold by bringing back the “Western” investor and further cuts will soon push it past the $3,000 per ounce mark.
“Most investors have been watching from the sidelines, looking at rates and where the dollar is headed and where the economy is headed,” said Cavatoni. “They're now looking to add gold to their portfolio for diversification benefits. Yes, the global demand for gold remains very high, but now that Western investors are back with the rate cut, gold is heading in the direction where it's appealing to them.”
And unlike the stock market, where many analysts are warning of potential volatility due to the coming Presidential election, Cavatoni says that same instability – both political and geopolitical – works in gold’s favor. In the short term, he says the potential pop in gold prices due to the election will be an emotional response. Over the long term, however, he views America’s unchecked national debt – now over $35 trillion - as the prime source for gold’s appreciation.
“How is the U.S. government going to tackle this issue of debt? What are they going to do about the cost of the debt that's going to be sustained over the next five years? What are their fiscal policies?” asked Cavatoni. “And that's not very clear from the presidential election rhetoric we're hearing now, because no one wants to talk about big problems they can't fix during an election leading up to it.”
Of course, those worried about the future of the dollar can also turn to Bitcoin now. The digital currency is up over 46 percent in 2024, outshining even gold. Nevertheless, Cavatoni believes Bitcoin only adds more risk to a portfolio.
“If you want to hedge your portfolio, buy gold,” said Cavatoni. “If you want to assume more risk in your portfolio, then you should gladly take a look at Bitcoin or other risk assets. Gold has historically proven that it's less volatile. It has the right kind of diversification benefits and ultimately provide you long term returns.”
Cavatoni also dismisses silver as a gold substitute, even though gold's “little brother” is up a healthy 36 percent so far in 2024.
“There's definitely price performance and interesting factors that are going to play out in silver, but it's mostly driven by industrial use and it's a much smaller market,” said Cavatoni. “If you want to add something that's really going to perform as a diversifier, look to gold.”
Still, despite gold’s golden run in the past year and no matter the bullish reasons Cavatoni offers for buying bullion, Scott Bishop, partner at Presidio Wealth Partners, remains unconvinced. Other than a few clients that may hold gold or gold miners in their portfolios, Bishop does not recommend clients buy it at this time.
“For most of the last five years, gold was pretty much dead money. Investing in the S&P 500 has given you far greater returns,” said Bishop. “Instead of buying gold, and it admittedly has been a good ‘trade’ and has had a good recent run, we have used other investments in our portfolio to play into these themes.”
Similarly, Tom Graff, chief investment officer at Facet, is not rushing into the market’s gold rush.
“Gold is mostly a dollar play, and while the dollar may keep doing down, I'd rather play that in global stocks than gold,” said Graff.
“Although I believe the Fed cut rates not because of weakness in the economy, many investors may not be looking behind the action,” said Steve Stanganelli, certified financial planner at Clear View Wealth Advisors. “There’s also an element of greed at play. As gold prices have climbed with central banks and Chinese investors gobbling up supply, you have a bandwagon effect from those worried about missing out on the latest, glittering trend.”
Added Stanganelli: “It should be part of a diversified portfolio. But I wouldn’t bet the farm on it.”
Finally, David Demming founder of Demming Financial Services, is also luke warm on gold, even if the metal is red hot.
“We are not strong advocates of hard assets but will hold modest holdings in commodities for some people. Gold historically is both uncorrelated and relatively mediocre as a return asset,” said Demming.
All signs show gold momentum not slowing anytime soon
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