Just How Good Is Gold Doing This Year?
2024.09.24 11:01
Anybody paying any attention at all knows that gold is setting records. But just how good is doing in 2024?
It is outperforming stocks.
And pretty much everything else.
Gold closed at yet another record high on Friday, ending the week at $2,622 per ounce. Year-to-date, gold is up 27.1 percent.
Meanwhile, the return on the so far in 2024 is 20.8 percent, and that includes reinvested dividends.
(Note: the chart doesn’t show the gains after Sept 9)
Gold is outperforming other stock indices well. The Dow is up 11.6 percent, and the NASDAQ is up 21.7 percent.
If things hold up for the rest of the year, gold is on track for its best return since 2010, in the midst of zero percent interest rates and the Federal Reserve’s three rounds of quantitative easing after the financial crisis. Gold is currently outpacing its gangbuster 25 percent gain during the pandemic.
You might think gold outperforming stocks is just a recent phenomenon, but gold has outgained the S&P 500 since the turn of the century. Gold is up 811 percent since January 2000, while the S&P 500 has charted a 517 percent return.
Forbes notes that the Fed’s “recalibration” to lower interest rates and easier money creates two tailwinds for gold.
“Lower rates of return on other non-stock assets which offer fixed payments tied to the Fed-set interest rates, like short-dated government bonds and certificates of deposit (CDs), may make gold a more popular diversification option, and gold is considered perhaps the most popular hedge against inflation, meaning if the Fed acted too swiftly and U.S. inflation gets worse again, gold prices should benefit.”
Forbes pointed out that gold has enjoyed “three distinct rallies” since 2000 – the years after the 2008 financial crisis, the COVID-19 pandemic, and the last two years’ bout of global inflation. The first two periods were marked by artificially low interest rates and quantitative easing. But the most recent gold rush is a little different. So far, it is based solely on the hope of easier money. Most of gold’s gains this year came before the Fed cut rates at all.
In other words, we’re seeing this kind of performance just based on the promise of Federal Reserve easing and one rate cut. Imagine what will happen if the economy cracks and the Fed returns, slashes rates to zero again, and ramps up the QE machine!
Fed policy isn’t the only thing driving gold higher. The initial stages of this gold bull run got a boost from high demand in Asian and Middle Eastern markets. In fact, we saw a significant movement of gold from the West to the East.
De-dollarization and central bank gold buying are also boosting demand for the yellow metal.
Dollar reserves globally have dropped by 14 percent since 2002. And de-dollarization accelerated after the U.S. and her Western allies aggressively sanctioned Russia and froze the country’s assets after it invaded Ukraine. As dollar reserves have dropped, gold reserves have grown. According to Goldman Sachs, the rate of central bank gold buying has tripled since the invasion.
Simply put, the United States’s weaponization of the dollar is undermining its strength and role as a reserve currency. This is boosting gold demand, and there’s no reason to think the situation will change any time soon.
According to the most recent World Gold Council survey released in June, 29 percent of central banks plan to add more gold to their reserves in the next 12 months. The WGC said it was the highest level since the survey began in 2018.
That means there are plenty of reasons to believe this gold bull still has plenty of legs.
