Some people swear by gold as an investment, and for good reason.
After all, it remains the precious metal that serves as a safe haven when markets and foreign exchanges go wild.
Perhaps that’s what’s driving up the prices – gold has hit a record high of $2,500 per troy ounce!
To rub salt onto equity investors’ wounds, gold is outperforming the S&P 500 year-to-date.
As with all types of investments, there will always be 2 camps – the bulls and the bears. Bulls will be banking on a momentum and macro fundamentals, betting that gold can scale higher.
While the bears would tell you that a correction is inevitable for anything that breaks a new high.
So let’s cover all the bases before forming an opinion.
Why gold price went up?
Since gold is not an asset class that produces value, its price movements hinge purely on supply and demand.
So why has demand for this glittering metal gone up?
The main reason links back to Central Banks around the world, which are snapping up gold at an accelerated pace.
According to data from the IMF and World Gold Council, Central Banks around the world have been net buyers of gold for the last eight consecutive months.
And why are Central Banks buying up more gold?
Gold has a history of having an inverse relationship with the US dollar, another major reserve asset. And we are due for a US rate cut, which almost every expert has been anticipating and predicting will happen in 2024, albeit the dragged out and delayed timeline.
A rate cut is inevitable. And with everyone knowing and expecting USD to devalue from the rate cuts, the safe bet to arbitrage from this is to simply switch to gold.
Some of the notable big buyers of gold:
- Central Bank of Turkey buying 12t, bringing its holdings close to the all-time high held by the bank back in February 2023.
- People’s Bank of China bought 10t, making 15 consecutive month of additions. That is 300t more at a total holding amount of 2,245t versus end of October 2022.
- Reserve Bank of India adding almost 9t.
In fact, it’s not just the institutions that are snapping up gold – retailers like Costco Wholesale Corporation (NASDAQ: COST), Walmart Inc (NYSE: WMT) are getting in on the action and offering physical gold bar to the public.
Can the rally be sustained?
The million-dollar question.
I’d be honest – I wouldn’t have thought gold prices would have beaten the S&P 500 year-to-date.
But looking at gold’s historical price movements from 2020 till now, it has been chugging along steadily, trading within the range of its 90-day simple moving average. There have been periods of healthy correction, before prices continue to edge up steadily.
However, with just days to go before the next crucial FOCM meeting and Fed Chair Powell’s speech, its anyone’s guess what will happen.
Will there be a “Sell on news” effect when the Feds cuts the rate for the first time? Your guess is as good as mine.
Technically, the price looks set to potentially edge up steadily from both a technical and fundamental point of view. However, I wouldn’t discount any potential selloffs post the Fed’s meeting.
Options to invest/take advantage of the gold rally
Compared to earlier generations, there are so many ways to invest or gain exposure to gold.
The most straightforward one is buying physical gold. Depending on your available capital, you can buy small amounts from goldsmiths or jewellers, either in small-ounce coins, bars, or as jewellery. However, do take note that their spot rate might not be the sharpest, and there is a mark-up for jewellery.
Those who want to buy and hold bullion swear by the services of BullionStar, YLG Bullion and Silver Bullion, to name a few.
For those who don’t want to manage the storage of physical gold, several banks offer precious metal investments without requiring delivery. In Singapore, banks like United Overseas Bank Ltd (SGX: U11) and CIMB Group Holdings Bhd (KLS: CIMB) offer gold savings plans. This is one of the preferred ways to gain gold exposure in a portfolio, as it it is pegged to actual gold reserves, with ownership simply changing hands when a buyer and seller clinches an agreement.
For those seeking lower fees and wanting to avoid using a bank as a middleman, there are better solutions as well. Gold ETFs provide another innovation solution to gain exposure to gold without the logistical headache, while also simplifying the buy and sell process.
The major gold ETFs are SPDR Gold Shares (NYSEARCA: GLD), iShares Gold Trust (NYSEARCA: IAU), SPDR Gold MIniShares Trust (NYSEARCA: GLDM). You can find the updated list of gold ETFs here and compare them before picking one that suits you.
One can also consider the equity route, by investing in listed companies that deal with gold as their business. This includes some of the largest gold mining companies like Newmont Corporation (NYSE: NEM), Agnico Eagle Mines Limited (NYSE: AEM) and Barrick Gold Corporation (NYSE: GOLD).
Closer to home, Singapore-based investors can consider CNMC Goldmine Holdings Ltd (SGX: 5TP) or Moneymax Financial Services Ltd (SGX: 5WJ). Malaysians have even more choices on Bursa Malaysia – they can either look at the likes of Poh Kong Holdings Bhd (KLSE: POHKONG), Tomei Consolidated Bhd (KLSE: TOMEI), or Bahvest Resources Bhd (KLSE: BAHVEST).
My take
I can be a bit sceptical when it comes to valuing assets based purely on perceived value. Gold’s value rises and ebbs due to numerous moving parts, which can be complicated, unlike company earnings, where are often more straightforward to assess.
I for one, find it difficult to bet on gold’s short or long term movements, even though I know how and where to invest in gold, as outlined above.
I am all in for higher certainty and the higher compounding power of equities. Yes gold might have beaten the equity markets YTD, but if we zoom out and look over a 10-year horizon, gold’s appreciation is child’s play compared to the S&P 500’s gains.
I’d choose +263% over +105% any day. Value that can be generated and measured puts me more at ease, especially when backed by solid data showing the stock market’s outperformance over gold.
To the traders, gold certainly presents a strong trading opportunity. For the gold lovers, gold will likely continue to appreciate in the long term due to the simple dynamics of supply and demand for a finite resource.
But for the serious pure-play equity investors, we are still better off with equities. That’s my two cents.
What do you think?
If you’re looking for more stock ideas, Alvin shares how he finds the best stocks to invest in to grow our Dr Wealth portfolio. Learn more here.