Seven Factors Driving Gold Prices Skyward in 2024

On October 21, 2024, Gold prices crested at $2,700 an ounce—more than double the price of 10 years ago, when prices stood at $1,200 per ounce. On a year-to-date basis, gold is up 30%, and Bank of America head of commodities Michael Widmer recently called for gold prices to rise to $3,000 an ounce.

Why the run-up in the old-school commodity? Market experts point to the Federal Reserve’s pivot to lower interest rates, ongoing wars in Eastern Europe and the Middle East, and rising global government debt.

“Spending commitments are likely to rise, as countries adapt to and tackle climate change, demographics become more challenging, and defense spending likely goes up too,” Widmer noted. “With lingering concerns over U.S. funding needs and their impact on the U.S. Treasury market, the yellow metal may become the ultimate perceived safe haven asset.”

Gold is proving so popular that one-ounce yellow bars now sell at Costco for $2,699, up from $2,000 two years ago.

The bars are selling out as the appetite for gold accelerates.

“Why invest in physical gold? The answer lies in its unparalleled safety, security, and track record of historic returns,” says Miraj Ladwa, director of Bullion Giant in Manchester, UK.  “This kind of return is significant, especially compared to other forms of investment. Plus, gold is a tangible asset—something you can hold in your hand—unlike stocks or shares, which are largely paper or electronic assets.”

Fundamental Factors

What else is driving the price of gold in the last quarter of 2024? And should you climb aboard the gold train with so much economic upheaval in play?

If you can balance the risks, these fundamental factors can help you chart your path to portfolio protection.

The Fed pivots on rates. Lower interest rates from the Federal Reserve help investors, consumers, and businesses by lowering borrowing and credit costs. That’s good news for gold investors.

“The Federal Reserve’s recent interest rate cut of 0.5 percentage points has led to an increase in liquidity,” says Ronen Cojocaru, gold investor and a founding board member of the San Francisco-based fintech digital trading firm 8081. “This has made borrowing cheaper and encouraged more asset purchases, including gold. Lower interest rates make gold even more appealing, as there is less incentive to hold bonds or savings that offer low returns.”

Younger investors dig an old asset. A new generation of portfolio builders is snapping up gold bars, shares of stock and funds, and gold jewelry and collectibles.

“As more Millennials and Gen Z seek to diversify their portfolios, alternative investments like tangible assets and collectibles are becoming increasingly popular,” Ladwa says. “We’ve seen first-hand how investments in physical assets like precious metals offer a unique advantage, especially during market volatility.”

Unlike traditional stocks and bonds, gold holds intrinsic value and can serve as a stable store of wealth, Ladwa says. “While items like watches, shoes, or alcohol carry both emotional and financial appeal, it’s essential to strike a balance between passion-driven purchases and assets that have historically acted as a safe investment,” he notes. “Diversifying into alternative investments is a smart strategy, but it’s crucial to choose wisely to ensure long-term value.”

Worldwide demand. Gold’s stellar rise is due to a combination of factors, including geopolitical tensions, economic uncertainty, and shifting monetary policies.

“Regional conflicts have historically driven demand for gold as a safe-haven asset, so with no signs of diplomatic resolutions in Ukraine and the Middle East and the increasing possibility of those situations deteriorating, this trend is likely to continue,” says Matthew Jones, precious metals analyst at UK-based Solomon Global.

Additionally, as central banks—especially in emerging markets and the BRICS bloc—diversify away from the US dollar and increase their gold reserves, demand for the precious metal is rising. “At the London Bullion Market Association conference earlier this month, spokespeople for the central banks of the Czech Republic, Mongolia, and Mexico even stated that having gold in reserves still matters to them,” Jones notes.

Currency depreciation, fueled by excessive money printing and weakening dollar strength, supports gold’s appeal as a hedge against inflation.

“Economic uncertainty persists, and the prospect of global slowdowns or recessions is pushing investors to seek refuge in gold,” Jones adds. “Central banks cutting interest rates is also fueling higher gold prices. Gold’s historical role as a stable and universally accepted asset makes it an attractive option in an increasingly uncertain global economic environment.”

Gold offers more downside protection. The Bank of America research note states that investors consider gold a better defensive investment than treasury bonds.

“Ultimately, it comes down to the oldest law of economics – supply and demand,” says Harry Barker, founder at De Pointe Research, an alternative investment research firm.
“In the current geopolitical environment, investors are understandingly concerned, and gold, like other tangible asset classes, offers a sense of security for your portfolio unmatched by bonds or equities.”

Emotionally, having an asset that can be physically stored and kept safe provides investors with a sense of security that is certainly lacking in the current international state of affairs, Barker notes. “Ultimately, as interest grows exponentially, so does the price. With a finite tangible asset like gold that must be mined to be acquired, when demand rapidly outstrips supply, the cost increases. A previous example was in 2008 when Gold saw its All-Time-High in the aftermath of the Lehman Brothers Collapse.”

Specific challenges. Like any investable asset, gold has risks.

“While gold seems to be on everyone’s mind at present, it is essential for investors to consider the cons,” Barker says. “Unlike many other investments, gold is not an income-generating asset, so profits can only be achieved through capital gains.”

Similarly, it’s also crucial for investors to consider the costs involved in gold investment.

“Storage of your gold can cost anywhere from $100-to-$500 per year for a safety deposit box,” Barker says. “Those who opt to store their gold at home would be wise to take out insurance, which typically runs between $1-2 per $100 insured.”

New gold investors can avoid storage fees by avoiding physical gold and buying shares of gold through the financial markets. “By investing in gold-related stocks and exchange-traded funds, you can gain exposure to gold’s value without the hassle of storing gold,” Cojocaru says. “Plus, some gold stock pay dividends, providing reliable income.”

What’s the ideal percentage of gold in the average investor’s portfolio? At De Pointe Research, Barker mirrors the stance taken by JP Morgan on Alternative Investments, which is that 15-30% of an investor’s portfolio should be allocated to alternative assets.

“So, depending on an investor’s existing allocation to alternative assets, we recommend that up to 30% of your portfolio be allocated to Gold Investment,” he notes. “This is a perfect allotment, especially in the current financial, economic, and geopolitical climate. Gold (like many other alternative asset classes) offers portfolio stability due to a lack of correlation to traditional markets like stocks.”

It’s perfectly okay to curb your gold position, especially if you’re just starting out in the commodities market.

‘Historically, the standard answer has been around 10% of a portfolio’s holdings,” Jones says. “However, more and more analysts are increasing their recommended portfolio allocation to 25%.”

That’s understandable, given gold offers low to no risk held over the long term, Jones points out. “Over the last five years, has delivered an impressive annual return averaging over 15% per annum – tax-free,” Jones adds.

Going forward. Commodity experts say that while the current environment seems primed for a pullback from a historical point of view, that may not be the case this time—at least not soon.

“Over the last 12 months, gold has experienced growth of over 27% in sterling and over 36% in USD as investors continue to seek stability, protection from inflation, and diversification in their portfolios,” Jones says. “This trend looks set to extend into 2025.”