In March 2024, we strategically included gold in our portfolios to enhance stability and protect against market uncertainties. This decision was influenced by several key factors, including increased demand for gold by global central banks amid de-dollarization efforts, declining interest rates, and gold’s traditional role as a hedge against inflation and geopolitical risks.
Increased Central Bank Demand and De-dollarization
Global central banks have significantly increased their gold holdings to reduce reliance on the U.S. dollar and diversify their foreign exchange reserves. According to data compiled by Bloomberg, exchange-traded funds (ETFs) have added substantial amounts of gold to their holdings. Notably, central banks globally added a significant amount of gold to their reserves, marking some of the highest levels of net purchases in decades. This surge underscores gold’s importance as a safeguard against currency fluctuations and potential depreciation of the U.S. dollar.
Declining Interest Rates
The downward trend in global interest rates also influenced our decision. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. Gold prices edged higher on expectations of further U.S. rate cuts, with traders pricing in about 75 basis points of easing by year-end. As bullion traded near $2,660 an ounce, gold benefited from anticipated monetary easing.
Positive Market Indicators
Several market indicators supported our decision:
- Gold Price Performance: Gold advanced 29% this year to $2,658.24 an ounce, nearing its all-time high of $2,685.58. Futures traded higher amid optimism over further rate cuts and safe-haven demand.
- Bloomberg Forward Curve Projection: According to Bloomberg’s current forward curve, the forward price of gold is projected to reach $2,900 by 2027. This projection underscores the strong future potential for gold investments and aligns with our long-term investment strategy.
- ETF Activity: ETFs added 24,797 troy ounces of gold to their holdings in the last trading session, highlighting renewed investor interest. Silver ETFs also saw significant purchases, indicating a broader interest in precious metals.
Hedge Against Inflation and Geopolitical Risks
Including gold provides a hedge against inflation and currency devaluation. Amid global economic uncertainties, inflation concerns, and heightened geopolitical tensions—particularly in the Middle East and Ukraine—gold’s role as a safe-haven asset has been reinforced. Increased haven demand contributed to gold being on track for a 14% quarterly rise, its biggest since early 2016.
Conclusion
By incorporating gold into our portfolios, we aimed to leverage its benefits as a hedge against inflation, currency risks, and economic uncertainties—especially in an environment of declining interest rates and geopolitical tensions. The projection of gold prices reaching $2,900 by 2027 further supports the potential for strong performance. This strategic inclusion aligns with our commitment to proactive asset management, ensuring that our clients’ investments are well-positioned to navigate current and future market conditions with resilience and potential for growth.