Gold is arguably the best performing asset class in 2024 and will probably be among the best performing next year, no matter what happens to the global economy.
While the yellow metal is traditionally seen as a low-risk, low-return investment, an “investment of last resort”, it has outperformed equities, which is no mean feat considering that the S&P 500 has closed at record highs at least 50x so far this year. As of September 23, gold was up 27.1% year-to-date, compared with 20.8% for S&P 500.
Gold’s outperformance is likely to continue into the next year, says George Milling-Stanley, chief gold strategist for State Street Global Investors, in an interview with The Asset.
As a long-time gold strategist, Milling-Stanley is considered a guru for gold investors. He was a managing director and key member of the World Gold Council before joining State Street.
“I'm old enough to know that nothing goes on forever, but I am pretty confident that for the foreseeable future, which for me is the next six to 18 months, we could see higher prices (of gold). I'm not seeing any reduction in those uncertainties that have driven the prices up this year,” Milling-Stanley says.
While gold has maintained its value over time, its price is often volatile over the short term. Things may be different this time, however.
Milling-Stanley cites three trends that he thinks will continue to push the strong performance of gold in the medium to long term: first, strong demand from central banks; second, a revival in gold investments by Chinese investors; and third, fears of a recession by North American and European investors, who turn to gold to hedge their risks.
Diversification trend
Asian central banks have been diversifying their mostly US-dollar-denominated portfolios into other assets. This is a trend that has been going on for the past 14 years, although it has gained further momentum in recent years.
“Central banks still have too much of their reserves in US-dollar- denominated debt, and they still don't have enough of their reserves in gold. So that's a trend that's been with us for a long time, and will continue through next year at least, and probably beyond that,” Milling-Stanley says.
Meantime, in China, investors are turning away from the poor-performing stock market and the beleaguered real estate sector towards traditional alternative assets, particularly gold and precious metals. This is a trend that has been identified by State Street’s gold strategy team which is headed by Milling-Stanley and Robin Tsui, vice president and Asia-Pacific gold strategist.
“There's been a significant revival in gold investment in China. I think that's very important. I think a lot of that is due to the fact that Chinese investors are well aware of all the problems in the real estate sector and the stock market. For thousands of years, gold has been a good investment for Chinese people. I think that's why we've seen this big revival in Chinese investment demand,” Milling-Stanley says.
Macroeconomic factors
In North America and Europe, persistent fears of a global recession arising from geopolitical events as well as anticipation of a weaker US dollar have also resulted in renewed demand for gold from investors.
“In North America and Western Europe, we've seen a big revival in gold investment. I think that's based on macroeconomic reasons. If you think back to the beginning of this year, everybody was fearful of a recession. Now that we've started to cut interest rates and the Fed (US Federal Reserve) has promised to be cutting interest rates gradually through next year. I think everyone is expecting the dollar to come down against other currencies, and gold has been behaving like a component of the currency market,” Milling-Stanley says.
Geopolitical tensions are another major factor. “We have an armed conflict in Europe between Ukraine and Russia, and that has the potential to turn nuclear at the push of a button. That's a very dangerous situation. They're probably made even worse by the uncertainties around the US presidential election. I believe that's what's been driving prices to a wonderful succession of record highs this year and what I would expect to continue to drive prices higher next year,” he adds.
