From now on, many people will find it hard to get past the glittering lights, the smell of punch and raclette and the melodies of “Last Christmas” or “Jingle Bells” – the Christmas markets have opened. Gold plays an important role on these occasions. The yellow metal doesn’t just serve as a head-dress for the Christ Child, though: at Christmas it is also and especially in demand as a gift, whether in the form of rings, necklaces, bracelets, coins or bars. However, these presents have never been so expensive, with the price of gold having risen 29% so far this year. A comparison with other asset classes shows that 2024 is the year of precious metals. Even the booming Wall Street, in the shape of the S&P 500 Index, has been unable to keep pace with gold and silver.
The rally has a number of drivers, chief among them interest rates. With inflationary pressures having eased, central banks have been able to loosen the purse strings. The SNB got things going in March, followed not three months later by the ECB, before the Fed changed track in September, when the US central bank lowered its base rate for the first time since 2020. It made another move in November, since when the target rate has been in the 4.50% to 4.75% range. The Open Markets Committee is likely to take action again shortly before Christmas. The CME Fed Watch Tool puts the likelihood of a further 25 basis point cut in interest rates at 56%. Nevertheless, this figure has shrunk since the US elections, the reason being that future president Donald Trump’s aggressive tariff policies could reignite inflation in the United States again – and thus put the brakes on the Fed’s loosening strategy.
The return of the 78-year-old to the White House is set to shake up the global balance of power across the board. Even before the political comeback of the year, geopolitics was supplying strong arguments for gold as a safe haven. Whether the war in Ukraine, the Middle East conflict or China's needling of Taiwan, the potential for escalation has not been this high for a long time. It is not surprising, then, that many investors are rediscovering gold for themselves. Up to and including October 2024, physical collateralised gold ETFs posted net inflows for six months in a row. The World Gold Council (WGC) last saw such a streak for these investment vehicles in 2020, the year coronavirus came.
In the view of J.P Morgan, investors should keep buying. The US bank considers the precious metal a good hedge for the first phase of the change of power in the USA. In this regard the analysts talk of a “debasement trade”. This term refers to a mix of structurally higher geopolitical risks, an uncertain inflation outlook and rising government deficits. The resulting debt devaluation, or debasement, threatens to erode confidence in currencies, which in turn enhances the appeal of gold as an instrument of diversification. Whether investors, public bodies or consumers – if J.P. Morgan is right, buyers will have to pay even more for gold at Christmas 2025: the US bank expects an average price of USD 2,850 per troy ounce for the final quarter of next year, a premium of just under 7% on the current level.
Source: Reuters; as at: 25 November 2024. Past performance is not a reliable indicator of future performance.
As at: November 2024; source: World Gold Council, Goldhub Past performance is not a reliable indicator of future performance.