Making sense of market moves
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The Olympics may have wrapped up, but now investors are the ones eyeing the gold.
The commodity is up about 20% so far this year, making gold bars worth over $1 million for the first time ever after the commodity’s price crossed $2,500 per ounce this week.
What’s driving gold’s winning run? The precious metal is getting a boost from investors betting big on the Federal Reserve slashing interest rates in September, an event that will likely continue to drive up gold’s price. Gold is often used as a hedge to the US dollar, and when the Fed lowers interest, the dollar tends to weaken—making gold more valuable to investors.
Gold’s role as a building block for tools used in the AI revolution, including semiconductors, has also been a huge driver in demand.
Plus, China, India and other nations have been increasing their strategic gold holdings. Geopolitical tension tends to contribute to gold’s rise, as investors see the asset as a more stable hedge compared to currencies and equities.
Is this a golden opportunity? The good times for the yellow commodity are likely to continue, analysts and economists say.
“We expect the yellow metal to reach $2,600/oz by the end of the year and $2,700/oz by mid-2025,” wrote UBS’s Solita Marcelli in a recent note.
But if you missed out on gold’s run so far this year, you aren’t the only one.
Money parked in gold exchange-traded funds, which is the easiest way for retail investors to get exposure, peaked in 2020 and has declined ever since.
In fact, gold ETFs have net outflows this year. Investors have drained $3.2 billion from these funds so far in 2024, indicating that central banks have had more to do with driving the price than retail investors, according to etf.com analyst Sumit Roy.
But that dynamic will likely change, as more investors hop on the golden bandwagon and likely push the price even higher. Chief Investment Officer at Bleakley Group Peter Boockvar wrote in a note today that despite many missing out on this year’s rally, investors will “be back and will kick start the next leg higher in gold.”—LB