Gold is often viewed as a safe-haven investment that can perform well when stocks are on the back foot. So it might seem surprising that both equities and gold are doing well in tandem, with the Dow Jones Industrial Average and the precious metal both recently hitting record highs.
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In reality, gold wears lots of different hats, and some of its investment roles can offset one another. Its recent moves are a reaction to lower Treasury yields, declines in the U.S. dollar and expectations that interest rates could fall next year.
If you’re wondering whether gold is a good investment right now, here are some of the issues to weigh and some advice from investing experts:
— Why do investors buy gold?
— What is the price of gold telling investors about the economy?
— How does central bank buying affect gold prices?
— Outlook for gold in 2024.
— Ways to invest in gold.
Why Do Investors Buy Gold?
As an investment that is considered relatively safe, gold competes against government bonds. But unlike bonds, gold doesn’t pay any interest. So, when interest rates decline, the precious metal becomes more attractive.
Gold is also considered a hedge against declines in the U.S. dollar and is seen as maintaining its value over the long term despite inflation.
What Is the Price of Gold Telling Investors About the Economy?
“While gold and stocks are typically noncorrelated investments, lower interest rates support both gold and stocks, so they have both moved higher,” says Chris Gaffney, president of world markets at EverBank.
Despite the short-term correlation between equities and gold, experts still attribute part of the current strength in gold to its safe-haven allure.
“The price of gold jumping over $2,000 toward all-time highs may be telling investors that there is more risk underlying the U.S. economy and world markets than is being priced in by the traditional equity markets worldwide,” says John Koch, senior investment analyst at iSectors.
“Any additional escalation of skirmishes in the Middle East could lead to a drop in the stock market with an accompanying jump in the price of gold, as we saw when the Hamas-Israel conflict first started a couple of months ago,” Koch adds.
And the conflict in Gaza has increased geopolitical risk that was already elevated by the ongoing war in Ukraine.
“Uncertainty surrounding these conflicts has investors moving a portion of their investment portfolio into gold, which has a good history of maintaining value during a crisis,” Gaffney says.
How Does Central Bank Buying Affect Gold Prices?
Underpinning investment in gold is purchasing activity by central banks, even beyond the Federal Reserve’s potentially dovish trajectory.
Gaffney says debt created by central banks is a key concern among investors. “Governments have issued record amounts of debt over the past decade, and these high levels of debt lead many to question the value of the fiat currencies issued by these governments,” he says. “Unlike currencies, which are ultimately government IOUs printed on pieces of paper, gold has intrinsic value which is not directly linked to any government, giving investors a bit more comfort during this era of record debt levels.”
Central banks also buy gold directly, forming a foundation of support for prices. They hold gold to diversify their reserves, as the metal can serve as a cushion against volatility in currencies and bonds.
“The financial use cases for gold are getting stronger as the world deglobalizes and countries become more inwardly focused, reflected by the strong central bank purchases over the past several years,” says Steve Land, lead portfolio manager of the Franklin Gold and Precious Metals Fund (ticker: FKRCX) at Franklin Templeton.
After breaking records in the first half of the year, central bank demand for gold continued into the third quarter, when global gold reserves rose by 337 metric tons, marking the second-highest third quarter ever, after last year’s, according to the World Gold Council, an industry group.
“There are a number of reasons for this trend, including … fiscal deterioration and the perceived weaponization of the U.S. dollar through the sanctions imposed on Russia after its invasion of Ukraine,” says Frank Giustra, a mining financier and CEO of Fiore Group, which manages a broad portfolio of private equity investments and companies.
[READ: Should You Invest in Silver as an Inflation Hedge?]
Outlook for Gold in 2024
A key consideration when it comes to gold is its volatility. While gold does tend to retain its value over long periods of time, short-term ups and downs can be quite jarring.
That, combined with the varying and sometimes contradictory investment cases for gold, can make price moves for the precious metal notoriously hard to predict, and expectations for gold’s trajectory into 2024 vary.
“The fundamentals of gold remain quite strong,” says Bob Elliott, CEO of Unlimited Funds and former head of Ray Dalio’s investment team at Bridgewater Associates. “The U.S. is entering an easing cycle, which should be supportive, and central banks have showed no signs of slowing down their purchases. If retail investors, who have been selling gold, flip to buying, it could reinforce an upward move.”
Gaffney expects gold will trend higher in 2024 on support from lower interest rates, continued geopolitical worries and a weaker U.S. dollar.
Collin Plume, CEO of Noble Gold Investments, a precious metals IRA broker, says the precious metal will hit $2,500 next year, also citing a lower dollar and geopolitical developments, in addition to central bank buying.
Others offered more cautious outlooks. “Predicting the future price of gold is challenging, and it depends on many factors,” says Avis Berg, chief investment officer at Berg Capital & Co. “While it continues to perform well, investors should exercise caution.”
Matt Dmytryszyn, chief investment officer with Telemus Capital, says the recent drop in Treasury yields has been overdone, meaning this tailwind for gold will moderate. On the other hand, the dollar could see moderate depreciation, which would be good for gold prices, he says.
“Barring any rise in geopolitical risk, where gold could be viewed as safe-haven asset, we expect its price to remain range-bound during the first half of 2024,” Dmytryszyn says.
Daniel Bustamante, chief investment officer of asset manager Bustamante Capital, has a $2,250 target for gold through the end of the first quarter of next year, but he thinks there will be a significant sell-off into the second quarter.
Ways to Invest in Gold
A popular way to own gold is to buy the physical metal, but as with any type of investment, you have to weigh the pros and cons. There are many ways to invest in gold, and here’s a brief rundown of each with specific investing ideas:
Gold Bars and Coins
“Investors can take delivery of the coins and bars, giving them a higher degree of comfort if they are purchasing gold for catastrophe insurance,” Gaffney says. “But this form of holding gold is also the most expensive, as there are premiums associated with each coin/bar in addition to the cost of storage and insurance.”
Plus, if you want to sell your gold, dealers tend to only buy it at a discount.
Gold ETFs
Investors who want exposure to physical gold without the hassle of storing and insuring it can consider physically backed gold exchange-traded funds, or ETFs, which have shares tied to gold stored in bank vaults.
The largest of these is SPDR Gold Shares (GLD). Another is iShares Gold Trust (IAU). “For most investors, ETFs like IAU and GLD are low-cost, liquid ways to access gold,” Elliott says.
Sean Casterline, a wealth manager with Delta Capital Management, expects GLD will move above its long-term range between $150 and $195 in 2024. GLD closed at $188.10 on Dec. 20.
“We believe that GLD will break out of this range next year and start a new, longer-term uptrend,” he says.
Gold Mining Stocks
Investors can also buy stocks of gold-mining companies, or ETFs that group mining companies together based on certain criteria.
For mining company stocks, Giustra’s top picks are Agnico Eagle Mines Ltd. (AEM), Newmont Corp. (NEM), Kinross Gold Corp. (KGC) and Aris Mining Corp. (ARMN).
“Newmont and Agnico are large, solid companies that pay good dividends,” he says. “Kinross is undervalued. Same with Aris Mining, which also holds potential for huge growth.”
Gold Royalty and Streaming Stocks
Gold royalty and streaming stocks, such as Franco-Nevada Corp. (FNV), Royal Gold Inc. (RGLD) and Wheaton Precious Metals Corp. (WPM), can be less risky because they don’t operate mines themselves. In a royalty deal, a company pays a miner upfront and later receives a percentage of the revenue that a mine generates. In a streaming deal, a company pays a miner an upfront price for a percentage of the metal produced by the mine.
Gold IRAs
Additionally, a gold individual retirement account is an option that offers tax advantages. A gold IRA allows you to invest part of your retirement savings in gold and other precious metals, with a chance to qualify for similar tax breaks to those offered by a traditional or Roth IRA.
Gold Futures and Options
Investors can also consider gold futures and options, but these can be quite complicated and may require more maintenance than stocks or funds. For the most part, investing in futures, options and derivatives has higher risk involved and is best left to the pros.
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Is Gold a Good Investment Right Now? originally appeared on usnews.com
