May 30, 2024

4 Investing Moves To Make as Gold Prices Hit All-Time High

Ruslan Lytvyn /

Ruslan Lytvyn /

Gold, known as an inflation hedge and a safe haven, hit all-time-prices earlier in March, partly thanks to growing expectations the Federal Reserve will start easing its monetary policy.

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According to Reuters, on March 6, spot gold rose 0.8% to $2,130.79/oz after hitting its record high of $2,141.59. Its previous record was in December 2023, when it hit $2,135.39/oz in December 2023, driven largely by a weak U.S. dollar and expectations the Fed will begin lowering rates, according to a JPMorgan report.

Indeed, as CNBC reported, gold prices tend to have an inverse relationship with interest rates. “As interest rates dip, gold becomes more appealing compared to alternative investments like bonds, which would yield weaker returns in a low interest rate environment,” CNBC noted.

Amid this gold rally, experts’ opinions on what investors should do vary. Earlier in March, analysts at Citi called for a 25% probability of gold averaging a record $2,300 per ounce in the second half of the year, according to CNBC.

“Citi describes gold as a developed market ‘recession hedge,’ and increasingly sees tailwinds from uncertainty around the U.S. election in November,” CNBC added.

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Proceed with caution

Peter C. Earle, senior economist at American Institute for Economic Research, noted that gold is a volatile commodity and may at times hit a high — and then retreat sizably. “Although individual financial circumstances may vary, taking a position in a commodity exclusively because it has hit a record high can be hazardous,” said Earle.

As he further argued, the gold market responds to uncertainty, and we are swimming in uncertainty right now. “From political to economic to social and international affairs, a large number of questionable circumstances must be resolved before clarity can be attained,” he said. “In the meantime, these are the markets in which gold has earned its reputation for being a safe haven asset.”

Other experts noted that the timing of this rally amid increasing uncertainty for the future path of the Fed funds rates and the strengthening dollar suggests it might be driven by factors other than interest rate expectations alone. Morgane Delledonne, Global X‘s head of investment strategy, Europe, said that if persistent, “this precious metal rally could be signaling a risk-off shift in investors’ sentiment since it also coincides with a drop in the 10-year Treasury yield since the end of last month.”

Hold 1% to 3% in precious metals

Vijay Marolia,  co-founder of The Cash Square stressed that it’s important to remember “that gold isn’t an investment — it’s money.”

“It’s the original money and it can’t be inflated away like fiat currencies,” he said. “That’s why I recommend people hold at least 1% to 3% of their liquid net worth in precious metals.”

According to Marolia, the best strategy is to dollar-cost-average over time — which, as he explained, refers to the practice of systematic investing designed to avoid trying to time prices.

Think long-term

Joseph Cavatoni, market strategist, North America at World Gold Council, underscored the fact that the tactical, short term move for gold’s price we saw is drawing a lot of attention to the asset from investors. “Now is a good time for investors to evaluate their allocation to gold, however, it’s important to consider not only the tactical drivers surrounding the rate cycle that are driving record highs, but also the longer term, strategic drivers that keep it on this upward trajectory,” he said.

Cavatoni noted that this includes its diversification and risk hedge qualities as we look at an election year and ongoing geopolitical risk, as well as strong central bank buying that has supported gold’s price. “In the last 20 years, gold outperformed most major asset classes, so rather than timing the market, investors should think about gold’s role in their portfolios in the long-term,” he added.

Not the best store of value, but a great diversification tool

“Gold hasn’t always been the store of value people hoped it would be,” Doug Boneparth, a certified financial planner and the founder and president of Bone Fide Wealth, told CNBC. Over the last century, gold has risen around just 1% a year, on average.

For instance, a $10,000 investment in the S&P 500 on March 5, 2014 would be worth around $32,700 today. Meanwhile, the equivalent investment in gold would have only grown to roughly $14,700, CNBC added, citing Morningstar Direct data.

As of March 7, gold was up 4.51% year-to-date, according to MarketWatch. Yet, despite meager returns compared to other assets, gold is a great diversification tool, which can help mitigate risk.

As CBC explained, its low correlation to traditional assets such as stocks and bonds, coupled with its historical ability to act as a hedge in times of economic uncertainty, offers an effective means of diversifying your investment portfolio.

“While gold prices can experience short-term fluctuations, the value tends to grow steadily over time. So, if you wait for prices to drop, you could actually end up paying more to buy in and enhance the stability and longevity of your portfolio,” CBS noted.

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This article originally appeared on 4 Investing Moves To Make as Gold Prices Hit All-Time High

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