Gold Outpace Major Asset Classes in H1 of 2024

Gold has performed remarkably well in 2024, rising by 12% year-to-date and outpacing most major asset classes, the World Gold Council (WGC) said.

In its “Gold Mid-Year Outlook 2024” report, the Council said that gold has thus far benefitted from continued central bank buying, Asian investment flows, resilient consumer demand, and a steady drumbeat of geopolitical uncertainty. However, the key question in investors’ minds is whether gold’s momentum can continue or if it’s running out of steam.

With a few exceptions, the global economy is showing wavering growth indicators – eager for rate cuts – amid lower but still uncomfortable inflation. And the market’s outlook is not too dissimilar, the report said.

“Our analysis suggests that the gold price today broadly reflects consensus expectations for the second half of the year. However, things rarely go according to plan. And the global economy, as well as gold, seem to be waiting for a catalyst,” the report explained.

For gold, the catalyst could come from falling rates in developed markets, that attract Western investment flows, as well as continued support from global investors looking to hedge bubbling risks amid a complacent equity market and persistent geopolitical tensions.

Risks Prevail

The outlook for gold, of course, is not without risks. A sizable drop in central bank demand or widespread profit-taking from Asian investors could curtail its performance. As it stands, however, global investors continue to benefit from gold’s role in robust asset allocation strategies.

Gold has made headlines this year, breaking record highs multiple times between mid-March and mid-May and has been trading above $2,300/oz for most of Q2. It has also provided double-digit returns across multiple currencies.

All this despite high interest rates globally, barring a few exceptions, and a strong US dollar – a combination that is often seen as a hostile environment for gold.

The relationship between gold, real interest rates and the US dollar is not “broken” as some market participants may think. In fact, this relationship has likely prevented gold from rising further. It is simply that, in the current environment, these factors have been offset by others that are more dominant, the Council said in the report.

So, what has been behind gold’s record-breaking performance to date in 2024? Support has come from continued purchases by central banks, strong Asian investment and resilient global retail consumer demand.

Central bank demand has been a key driver of gold’s performance in recent years and the Council estimated that it contributed at least 10% to gold’s performance in 2023 and potentially around 5% so far this year.

However, the People’s Bank of China (PBoC) has reported a deceleration in gold purchases over recent months, culminating in holdings that remained unchanged at the end of May.

This, combined with notable sales, has raised questions as to whether demand from the official sector may lose momentum. But it is still expected that the demand from Central Banks to remain above trend this year.

While reported gross purchases may be lower than last year, gross sales have also decelerated, primarily due to the absence of the hefty Turkish sales that was witnessed in early 2023.

Given that central bank demand is often policy driven, timing is difficult to ascertain, but the Council’s recent central bank survey provides some reassurance: gold reserves managers believe they will retain their positive outlook towards gold.