Gold has risen to new records in 2024. Headlines that Costco has started selling gold bars and, in fact, selling out have gone viral. For Bruno Mars fans, there appears to be twenty-four-karat magic in the air. The recent rise in gold is not new, as gold has captivated humanity for centuries. Apart from its shine, is gold a good investment? In this issue, we explore a brief history, some of the drivers of the recent rise in gold prices, and considerations for adding gold to the portfolio.  

A Brief History of Gold

Gold has been used as a currency since ancient times. In modern times many countries fixed the value of their currencies to gold, and this became known as the Gold Standard. Eventually, governments needed flexibility to expand monetary supply beyond the gold standard, so they introduced the Bretton Woods System. This system fixed the dollar to gold at a set price of $35 per ounce and fixed international currencies to the dollar.  

Starting in the 1960s, as the United States began to run large deficits, strains began to emerge, and eventually, the U.S. fully abandoned the link to gold in 1971, leading to the collapse of Bretton Woods. This allowed the price of gold to float freely. Following this, gold prices surged during the hyperinflationary period in 1970. Then came the 80s and 90s when gold prices stagnated. Trends, however, started to change with the new millennium. Gold started 2000’s at about $300. It then increased exponentially to recent records at $2400.  

What's Driving Gold Higher?

The price of gold is driven by a combination of different factors rather than a single cause. These factors include supply and demand, real interest rates (adjusting for inflation), and the level of the U.S. dollar. Gold has an inverse relationship with the U.S. dollar and real interest rates. When the dollar or real interest rate rise, gold prices tend to fall. The fall in interest rates explains a large part of the price increase in gold from 2000 to 2021 when interest rates steadily progressed lower and were amplified by zero interest rate policies started during the Great Recession, which sent real interest rates into negative territory. 

However, gold prices have recently been rising in tandem with the U.S. dollar and real interest rates. Increased demand from central banks has been a key driver for rising gold prices, despite the recent rise in interest rates as well as the strength of the U.S. dollar. The increased demand is likely being driven by rising global debt levels and increased demand from countries like China looking to shift reserves away from U.S. dollars, while other central banks look to gold as a hedge against inflation and source of stability, given increased geopolitical concerns. 

Should Investors Buy Gold?

While gold has seen a strong rise in prices recently, it is not a panacea. Over the last 33 years, it has underperformed U.S. stocks (S&P 500) with higher risk. In comparison to U.S. bonds (Bloomberg US Aggregate), gold is roughly 3.7x as volatile with similar returns. Gold also does not pay a dividend or coupon like stocks or bonds. 

However, gold can be a diversifier in a portfolio. This was perfectly illustrated during periods like the Great Financial Crisis, the COVID crash when stocks fell greater than 15%, as well as 2022 when global stocks lost -20%, global bonds lost -16%, and gold rose 3%. 

For investors, there are several ways to add gold to portfolios beyond owning the physical asset through gold coins and bars such as gold mining stocks or exchange-traded funds. As always, before venturing down one of the many gold- investing avenues, investors should assess their personal risk-reward and ensure the reason for owning gold is well understood by partnering with their trusted financial advisor. 

Some Key Takeaways

• Gold prices reached a new record high in 2024 driven by demand from global central banks. 
• Gold is not a panacea. The shiny metal has not performed as well as stocks or bonds in the last 33 years but does act as a diversifier in portfolios. 
• Before rushing to buy gold, investors should ensure the reason for owning gold is well understood. 

Have Questions?

Together we can navigate the market and to help you make decisions on sound investments. Reach out to us today for personalized advice tailored to your specific financial situation. We're here to help. 

Johnathon Opet, CFP® is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. ​Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.

Investments are subject to risk, including loss of principal. The precious metals, rare coin, and rare currency markets are speculative, unregulated, and volatile, and prices for these items may rise or fall over time. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

Important Information 
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345. 

Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation. It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends. 

Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments. 

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