Topline
Gold is on the precipice of hitting its highest price on record as investors turn to the safe-haven asset amid a rocky macroeconomic environment, and analysts believe the precious metal could have much more room to run—thanks in no small part to the potential recession looming ahead.
Don’t tell Warren Buffett – gold’s on a five-year-long hot streak
Key Facts
Gold prices are up 10% this year, on pace for their best annual performance in three years and up to roughly $2,040 per ounce, a tick behind their briefly-achieved peak of about $2,075 in August 2020—when the Covid-19 pandemic and elevated geopolitical uncertainty fueled fervor for the safe-haven asset.
And the precious metal could soon soar far past its all-time high, UBS’ global chief investment officer Mark Haefele wrote in a Tuesday note to clients, setting a $2,200 target for gold by next March, indicating about 8% upside.
A weakening U.S. dollar, historic stress in the banking sector, the standoff with the federal government’s debt ceiling, easing expectations about interest rates and the rising likelihood of a recession all bolster gold prospects, according to Haefele.
“Gold is typically driven by macro variables (US real rates & USD strongest influence) rather than supply [and] demand,” says UBS analyst Cleve Rueckert, explaining that the surge in the unique commodity’s price is unique as it has little to do with its use case.
So how can you get gold exposure? In addition to buying physical gold or futures contracts for the metal, investors can also purchase exchange-traded funds holding the commodity or buy shares of public companies who mine the metal, according to Morgan Stanley.
Surprising Fact
Gold mining stocks have surged this year: Shares of Gold Fields (up 50%), Kinross Gold (27%), Franco-Nevada (14%), Royal Gold (19%) and Barrick Gold (10%) have each outperformed the S&P 500’s 8% gain.
Crucial Quote
The “plethora of risk” in the U.S. and abroad should stoke demand for gold, according to Oanda analyst Edward Moya, declaring it a “win-win scenario” for the precious metal.
Key Background
Long considered a safe-haven asset for retaining its value throughout history, gold became a darling for investors in 2020 during the worst pandemic in generations, gaining as much as 40%. Gold has returned 18% over the last three years, 54% over the last five years and 41% over the last decade. That compares unfavorably to the S&P’s 41% three-year return, 51% five-year return and 156% 10-year return, but easily trumps the low- to mid-single-digit returns for other non-equity investments such as government bonds and high-yield savings accounts. About a quarter of Americans think gold is the best asset to invest in long-term, according to a Gallup poll released Thursday, hitting its highest level in over a decade.
Chief Critic
Legendary investor Warren Buffett is famously a detractor of gold. The billionaire declared the investment “doesn’t produce anything” of value in a 2019 interview with CNBC. “When you’re buying nonproductive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along,” Buffett added.
Further Reading
Investors Go For Gold As Prices Surge—But This Asset Is Still The Best Investment, Poll Finds (Forbes)
