George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, joined Keith Black, Managing Director at RIA Channel, to discuss the gold market.
Gold prices rose 10% in the first half of 2024, hitting several all-time highs.1 It is unusual that bitcoin, the S&P 500, and gold prices have all reached new highs this year, as stocks and cryptocurrencies are risk-on assets, while gold is a risk-off asset.
While gold is attractive as a risk-off asset, a number of fundamental developments continue to support gold prices. Central banks have added gold to their official reserves for almost 15 straight years.2 Emerging markets central banks are seeking to reduce their reliance on US dollar reserves and are adding to the 5% of reserves held in gold. In 2024, purchases by emerging markets central banks hit the highest-ever level for the first quarter of a calendar year.3 The uncertainty generated by geopolitical risks also tends to drive investors to seek protection in gold.
A key driver of emerging market demand has been China, both from individuals and the central bank. Investors have been purchasing gold due to growing mistrust in the Chinese currency and real estate market.
Historically, a small allocation to gold has improved both portfolio returns and risk. Over the last 50 years, gold prices have risen at an average annual rate of over 7.75%, with less volatility than equity markets.4 When the US exited the gold standard, prices rose from $40 per ounce in January 1971 to $850 per ounce in January 1980.5 Gold prices fell to $255 per ounce by April 2001, before rising to over $2,000 per ounce today.6
Gold prices don’t reliably predict inflation and don’t immediately increase after a sharp rise in inflationary pressures in the economy. However, gold has offered strong performance in times of sustained high inflation, such as a two-year period when inflation rates exceed 5%. While there is no reliable relationship between gold and interest rates, gold prices face headwinds during times of strength in the US dollar.
Resources:
Gold 2024 Midyear Outlook: Three Drivers at the Helm for Gold (ssga.com)
1 Bloomberg Finance L.P. & State Street Global Advisors. Note: Gold is represented by LBMA Gold Price PM (US$/oz.). Date range from 12/28/2023 to 6/26/2024. Past performance is not a reliable indicator of future performance.
2 World Gold Council: Gold Demand Trends Q1 2024. Date range from 2010 to Q1′ 2024.
3 World Gold Council: Gold Demand Trends Q1 2024, data as of 3/31/2024.
4 Bloomberg Finance L.P. & State Street Global Advisors. Gold is represented by LBMA Gold Price PM (US$/oz.). Date range from August 15, 1971 to June 26, 2024. Past performance is not a reliable indicator of future performance.
5 Bloomberg Finance L.P. & State Street Global Advisors. Note: Gold is represented by LBMA Gold Price PM (US$/oz.). Date Range from January 1971 to January 1980. Past performance is not a reliable indicator of future performance.
6 Bloomberg Finance L.P. & State Street Global Advisors. Note: Gold is represented by LBMA Gold Price PM (US$/oz.). Date Range from April 1, 2001 to June 26, 2024. Past performance is not a reliable indicator of future performance.
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The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
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Exp Date: June 30, 2025