What you need to know about gold’s curious rally

The precious metal is traditionally seen as a haven in times of volatility and geopolitical risk.
The precious metal is traditionally seen as a haven in times of volatility and geopolitical risk.


An odd cocktail of factors is spurring the haven asset to records.

“Quiet." “Stealthy." “Surprising." Gold prices are hitting record highs, and Wall Street analysts say they have been caught off guard.

The precious metal is traditionally seen as a haven in times of volatility and geopolitical risk. This time, its ascent is coinciding with investor optimism about the U.S. economy, which has sent riskier assets like stocks to new highs. Even bitcoin has surged past its previous record.

“Gold’s sharp jump to new nominal highs has surprised us in its intensity," said analysts at J.P. Morgan Global Commodities Research on Thursday.

Here’s what analysts think is going on.

New highs

Gold futures have notched gains for the past seven trading sessions and broken records in the past six. Futures for March delivery settled Friday at a record $2,179 a troy ounce, bringing gold’s gains this year to 5.6%.

Some triggers are easier to explain than others.

The latest run-up came after a drop in consumer sentiment and moderate inflation data late last month raised hopes that the Federal Reserve will cut interest rates this year. Lower rates make gold, which pays no income, more attractive relative to assets such as stocks and bonds that pay dividends and interest.

But the magnitude of the move and gold’s climb before that call for more explanation.

Gold’s biggest enemy is a rise in real yields, which are interest rates adjusted for inflation. Yet gold has notched a 20% gain since the end of 2021. That is even as the Fed’s inflation fight has catapulted real yields to about 1.8% from around negative 1% since the end of 2021, prompting a selloff of gold exchange-traded funds in the U.S.

Overseas buying

Part of the explanation is a sense of growing economic and geopolitical risks outside the U.S. Central banks around the world began buying gold after the 2008 financial crisis and accelerated their purchases after Russia’s invasion of Ukraine in early 2022.

Then in October, gold jumped 5% after Hamas attacked Israel. It is now 19% higher than when the conflict began.

Bullion hoarding by central banks has approached 30% of global mining production over the past two years. Last year, those institutions snapped up more than four times the amount of gold that was ditched by ETF investors in the U.S., according to Suki Cooper, precious-metals analyst at Standard Chartered.

The buying spree has continued at least through January of this year, led by central banks in Turkey and China, according to the World Gold Council.

At the same time, the Royal Mint said gold purchases jumped after the U.K. entered a recession in late 2023. Demand for gold in China has also been “insatiable," said Nicky Shiels, metals strategist at MKS PAMP. The country’s real-estate market has been battered, and the benchmark stock index kicked off 2024 with a 6.3% drop in January, after falling for three years in a row.

“It’s complete fear buying," Shiels said.

Her firm is seeing robust demand elsewhere. In India, investors are seeking to hedge inflation in one of the world’s fastest-growing economies.

Hitting a wall

Greg Sharenow, head of commodities and real assets at Pimco, is among those who question whether gold’s latest rally can continue. Central banks have played a big role in its rise, and there is a risk that some will balk at buying more bullion at unprecedentedly high prices, he said.

“They’re the tailwind," he said, “But it’s hard to know that that tailwind remains as strong since prices have really moved."

Although futures buying by systematic trend-following traders has helped power gold’s rise, they are also now close to their maximum long positions, according to TD Securities. That makes it unlikely they will boost prices much higher.

Everyday as well as institutional investors in the U.S. have been selling gold, though less than they ordinarily might with interest rates still high. Some might be worried that the stock market’s rally has gone too far and are hanging on to the metal as a hedge, analysts said.

A trigger

Gold made its last record run in December, after the prospect that interest rates had peaked sparked the so-called everything rally.

Similar forces could be at play with the latest upsurge. Many on Wall Street think the gains can continue—but there needs to be a clearer signal that the Fed will indeed cut rates soon.

Citigroup, J.P. Morgan and TD Securities all have $2,300 price targets.

Leigh Goehring, managing partner of Goehring & Rozencwajg Associates, is buying shares of mining companies, which he thinks will outperform gold itself given their low valuations. The VanEck Gold Miners ETF is down 4.4% this year, while the S&P 500 is up 7.4%.

Goehring said that Western investors need more certainty that rate cuts are coming before switching from selling to buying gold. He thinks that conviction could come at any time.

“Who knows when it’s going to snap?" he said. “It could very well turn around very, very quickly."

Write to Bob Henderson at bob.henderson@wsj.com


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