Why are a growing number of investors now piling into gold?
Gold is up around 12% year-to-date, but despite this impressive price jump, many investors are saying they plan to continue to pile into the precious metal. The chief executive of one of the world's largest independent financial advisory and asset management organizations says that there's been a 35% year-to-date jump in clients globally seeking to increase their exposure to gold.
deVere Group's Nigel Green says: "A growing number of investors around the world are considering increasing their holdings of gold within their diversified investment portfolio. "Their decision-making process to invest in gold is not merely based on its historical significance, but on several current and compelling factors that could collectively signal a steady rise in its price over the long term.
"These factors are deeply interlinked and could reinforce the rationale for gold as part of a resilient investment strategy." One of the most persuasive reasons they cite to invest in gold is the increasing demand from advanced economies.
"Despite elevated prices, it's been widely reported that central banks in developed countries are ramping up their gold purchases. "The long-term value of gold, its robust performance during crises, and its effectiveness as a portfolio diversifier appear to be the main reasons given by these central banks for this pivot.
"Emerging market central banks have historically held gold for similar reasons, especially since the 2008 financial crash. Now it seems richer countries are, too, increasingly adopting the same strategy."
China's continuous gold buying spree is a clear indicator of its strategic move to diversify its reserves.
"By reducing its dependence on the US dollar, China aims to mitigate the risks associated with dollar-centric economic policies, sanctions, and geopolitical tensions. This strategy is part of a broader effort to elevate the yuan's status on the global stage, thereby challenging the dollar's hegemony," notes Nigel Green.
Recent data indicates that this trend is not confined to China alone. Countries like Turkey and several nations in the Middle East are also significantly increasing their gold reserves. For instance, Turkey's central bank has been among the top buyers of gold in recent years, aiming to protect its economy from currency volatility and external financial pressures.
This widespread accumulation of gold highlights a collective move towards financial security and stability, independent of the US dollar. "As more nations adopt similar strategies, the cumulative demand for gold will likely drive its price higher." Also a significant shift is occurring in the global commodities market, in terms of a move for some to be priced outside of the dollar.
The deVere Group CEO explains: "This move away from dollar-denominated pricing is partly a reaction to the US's tendency to use the dollar as a tool for economic sanctions. While these sanctions serve specific geopolitical purposes, they also undermine confidence in the dollar's stability and reliability as a global currency. "For example, countries like Russia and China have been actively promoting the use of their own currencies for oil and other commodity transactions.
"Geopolitical uncertainty is another critical factor driving investors' decisions to invest in gold. The upcoming elections in major economies such as the US, the UK, and France add layers of unpredictability to the global economic outlook. "Political uncertainty often leads to economic volatility, and gold has historically performed well in such environments."
For instance, the 2020 US elections saw significant market fluctuations, with investors flocking to gold as a safe haven amid the uncertainty. Similar trends can be expected in future elections, where the outcomes could significantly impact economic policies and global trade dynamics.
"By holding gold, investors hope to hedge against these uncertainties and protect their overall portfolio from potential downturns," says Nigel Green.
"Also, expectations of interest rate cuts by the US Federal Reserve, and global central bank peers, lower the opportunity cost of holding gold, as lower rates reduce the returns on interest-bearing assets. This environment makes gold more attractive to investors."
He concludes: "The growing demand from both advanced and emerging economies, China's strategic diversification, the shift in commodities pricing, the geopolitical uncertainties, and rate cut expectations, are all cited by more and more investors as reasons to increase gold in their portfolios.
"We expect a sustained upward trend in gold prices in the current environment."