The TV show Gold Rush may be in its 14th season, but evidently, the mother lode of investors is only now catching on.
The price of gold is at record levels, with spot gold prices having eclipsed the $2,500-per-ounce mark at the end of last week. As of midday Tuesday, prices were near or above $2,550 per ounce. And, as Bloomberg News reported, the recent appreciation means that the average gold bar, which weighs 400 ounces, is now worth $1 million for the first time.
While many people are likely only starting to pay attention to gold prices, investors in gold and precious metals have certainly been on a roll: Over the past six months, gold prices are up nearly 25%. Over the past year, gold is up more than 32%. Compare that to the stock market: The S&P 500 is up almost 13% over the past six months and 27% over the past year.
With gold outperforming the stock market, it’s worth asking: Is 2024 the new 1849?
Not quite. But the increase in gold prices is notable, especially since gold and other precious metals are, traditionally, seen as a particularly volatile investment. Between August 2012 and August 2022, for example, gold prices didn’t appreciate much, if at all. So what’s behind the recent spike in value? While numerous variables ultimately determine spot prices, there are a couple of key factors behind the recent bull run.
Why gold prices are rising
First and foremost is the recent bout of inflation in the United States and other parts of the world. Investors may turn to gold as a store of value to try and ride out waves of inflation; and though U.S. inflation has largely subsided after peaking a couple of years ago, it created a demand wave in the gold market that is still riding high.
Central banks have also been buying up gold. Second-quarter data from the World Gold Council shows that central bank gold demand was up 6% year-over-year and that, cumulatively, central banks bought 483 tonnes (one tonne is equal to around 2,200 pounds), “the highest first half year” in the organization’s data series.
Additionally, economic uncertainty can increase the demand for gold. Earlier this month, following the release of the July jobs report—which subsequently led to a short-term market freakout—gold prices increased as anxieties about an upcoming recession likewise increased.
Further, there are concerns about the national debt, prospective interest-rate moves by the Federal Reserve, and the upcoming election—and when you take those, add in geopolitical risks including wars in the Middle East and Ukraine, it becomes a bit clearer to see why gold has perhaps become the hottest commodity on the market.
All that glitters
“Many of the structural bullish drivers of a real asset like gold—including U.S. fiscal deficit concerns, central bank reserve diversification into gold, inflationary hedging and a fraying geopolitical landscape—have lifted prices to new all-time highs this year . . .” said Natasha Kaneva, head of global commodities strategy at JPMorgan, in a recent research note. “Nonetheless, precious-metals markets will be focused on any potential policy changes that could accentuate or alter one or more of these themes.”
As for what happens next? It’s anyone’s guess, but some analysts expect gold prices to continue to climb. Analysts at UBS, for one, anticipate prices hitting $2,600 by the end of the year.
But given gold’s volatile nature, it may be a good idea to remember Robert Frost’s immortal words: “Nothing gold can stay.”