A miraculous year for Gold

2024 has been nothing short of miraculous for gold. The precious metal has seen an extraordinary rise in value, with prices up more than a quarter throughout the year, now hovering above $2,600 per troy ounce. For investors, the year has been marked by gold’s seemingly unstoppable momentum, with the metal solidifying its reputation as a reliable asset in uncertain times.

 

A Safe Haven During Uncertain Times

As early as the end of 2023, many savvy investors began to move into gold and other commodities. Historically, safe-haven assets like gold tend to perform well during periods of financial and geopolitical instability. Gold serves as a backstop for portfolios, offering protection when riskier assets such as low-rated corporate bonds or US stocks falter.

Yet, 2024 has presented an unexpected twist. Despite strong performances in riskier markets—such as stocks and corporate bonds—gold has soared, demonstrating an impressive 26% rally. This significant uptick seems counterintuitive, given that riskier markets have been thriving. The gold price, which was below $2,000 as recently as February, has surged by over 35% since then, culminating in record highs by late September.

 

The Unexplained Rally

Why has this happened? Unlike commodities like copper, whose price movements can be tied to industrial demand, or financial instruments like stocks and bonds that generate dividends or interest, gold's price rise is often less straightforward. Its role as a hedge against inflation is part of the explanation, but not the whole story. Interestingly, gold's rise continued even as inflation eased in the second half of the year, making the inflation argument less convincing.

Some analysts point to falling interest rates as a driver for gold’s rally. Since gold does not pay out interest, owning it becomes more attractive when bond yields are low. However, 10-year US government bond yields have remained relatively steady this year, making it difficult to attribute gold's meteoric rise to falling rates alone.

 

Geopolitical Tensions: A Catalyst but Not the Whole Story

The case for gold as a hedge during geopolitical turbulence has been a recurring theme in 2024. Events like Israel’s invasion of Gaza and the ongoing conflict between Russia and Ukraine have certainly influenced gold prices, but not consistently. For instance, while gold spiked during the escalation of violence in Gaza, it did not hit new highs after Iran’s missile strikes against Israel.

This suggests that while geopolitical risks may play a role, they are not the sole driver of gold’s performance. Instead, gold's rise appears to be the result of a broader confluence of factors that are not easily explained by any single event or trend.

 

The Power of Widespread Buying

The real strength of gold in 2024 lies in the fact that buyers continue to outweigh sellers. This surge in demand is coming from all corners of the market, including individual investors, institutions, and governments.

Central banks, in particular, have been purchasing gold at record levels, spurred by a desire to diversify away from the US dollar. The US’s freezing of Russia’s dollar assets has prompted many governments to preserve wealth through gold, further driving up demand.

 

What Lies Ahead for Gold

Looking forward, gold shows no signs of slowing down. With US interest rate cuts likely on the horizon and the prospect of a weakening dollar, gold’s appeal will only grow. Central banks are expected to continue their record-breaking gold purchases, providing further support to prices. As more institutions seek to hedge against geopolitical risks, inflation, and financial instability, gold will likely remain a sought-after asset.

In conclusion, 2024 has been a banner year for gold, with its rally being driven by a complex web of factors. From geopolitical risks to inflation hedging and central bank buying, gold has proven its ability to defy conventional market logic. As we move into 2025, the question remains: just how high can gold go? For now, the answer is unclear, but the precious metal’s allure has never been stronger.