Gold is a perennial asset. It’s safe-haven status means people have bought the yellow metal throughout the centuries to safeguard the value of their assets and protect it from market volatility. So, what makes 2024 a good time to buy gold? Persistent inflation, slow economic growth, lower interest rates and continued geopolitical tensions in several key countries are all positive drivers of gold and make 2024 a prudent time to buy.
Persistent inflation
The late 2022 inflation highs of up to, or in over, 10% may have finally eased, but the memory is still fresh and the wounds are still deep. The cost-of-living crisis that resulted from the rapid rise in prices impacted on growth prospects throughout last year but will also continue to drag on growth in 2024.
And it’s not over yet. Inflation remains above the 2% target set by UK, European and US central banks. The target that is designed to encourage stability, not too high to slow growth but not too low it dips into deflationary territory. Too much of either inflation or deflation is a drag on the economy, and right now the number is higher than desired. The UK inflation rate finally dropped below 4% in November 2023 (just below at 3.9%), months after other developed countries had already breached the 4% ceiling. The US is at 3.1% and the Euro area was at 2.4% in November.
The problem with even some inflation is that the value of cash decreases. The only way to counteract inflation is to find investments that pay more interest than the rising cost of goods, or buy things that will rise in value over time. At the height of inflation, even with rapidly rising interest rates, savings accounts weren’t able to counteract the cost of inflation. Even now, good deals are restricted or often time limited, and it is likely interest rates will start to come down as the pendulum swings the other way.
Gold has a historic reputation as an inflation hedge because it often rises in times of uncertainty (and high inflation usually brings with it market uncertainty), and it is a commodity so its value also rises along with other goods. With inflation still almost double the 2% target, gold would be a prudent 2024 investment.
Slow economic growth
Predictions of a recession in 2023 did not come to pass, but growth was muted and the outlook for global growth in 2024 is actually lower than 2023, with most of the momentum coming from Asia. The UK has taken longer to curb inflation highs and posted worse growth than most developed economies. 2024 growth is forecast to be slower still.
Recessionary or low growth economies are often a boon for gold investment. The difficulty of finding inflation-beating investments in a stagnant economic environment highlights gold’s safe-haven status and long-term growth potential. Investors can choose to buy physical gold and hold it, protecting their assets from potential market volatility (because gold tends to increase during uncertain times) while also being able to quickly liquidate the gold when new growth opportunities arise. Meanwhile the risk of recession or more market turmoil has not dissipated. There is no market consensus on whether global or local economies will have a ‘hard landing’ (a sharp and severe downturn after the shocks of rampant inflation and rapid interest rate rises), or a ‘soft landing’ where the economy slows gently, inflation eases, and growth continues at a sustainable rate. In either of those scenarios, gold provides a solid safe-haven investment opportunity.
Lower interest rates
The interplay between gold and interest rates is complex but crucial. When interest rates go up, it becomes more attractive to invest in interest-bearing assets like bonds, savings accounts or other fixed-income securities, rather than gold which doesn’t generate interest. However, governments around the world had to rapidly increase interest rates over the last two years to curb rampant inflation, and yet the value of gold continued to rise. Between December 2021 and December 2023, the Bank of England increased interest rates 14 times from 0.25% to 5.25%. Meanwhile the gold price rose by over 20% in the same period.
This reflects the complexity of gold and interest rates, because so many other factors affect the gold price, including geopolitics, inflation, currency, market conditions and economic volatility. But what is pertinent to investing in gold in 2024 is the expectation that interest rates, having risen so quickly, will ultimately come down, reducing the attraction of interest-bearing assets and adding to the attraction of gold investments.
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Geopolitical tension
Geopolitical tensions will always exist, it is just the degree to which they impact on global economics that may wax and wane. The Russia-Ukraine war continues to rage, although the inflationary impact has lessened over time, while the more recent Israel-Gaza war shows no signs of a short-term resolution. These conflicts, in particular, rile up political tensions that have frequently impacted on global markets, from stocks to commodities.
The physical wars will add to the looming battles in the UK and the US for political leadership in the forthcoming 2024 elections. The policies of the winning parties will shape the economic and political landscapes not just at home but on the world stage, and this can impact on global markets, especially where instability is indicated.
Globalisation means we are all dependent to some extent on other nations and the vagaries of their political and economic systems. Physical or political conflict is always either in the spotlight or waiting in the wings. For centuries physical gold investment has been a key value protector in volatile times – rising when markets are falling, and holding its value over the long term.
Why buy gold in 2024?
Crystal balls are notoriously unreliable so no-one can fully know what 2024 will bring. But there are inevitable consequences of the monetary policies over the last two years, and the consumer and business stresses of high inflation and interest rates. These consequences will invariably put pressure on many aspects of the economy, and gold can be a sturdy investment option for a diversified portfolio in a low-growth economy with a side order of geopolitical tension.
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