Gold Shines Amid Economic Uncertainty, Outperforming Stocks and Bonds in 2024
The ongoing volatility in the stock market and growing concerns about economic growth have sparked renewed interest in gold as a safe haven investment. With the stock market pulling back from its recent highs, spot gold has actually outperformed stocks and the broader bond market year-to-date. This is particularly noteworthy given the Federal Reserve’s aggressive interest rate hikes, which typically weigh on the performance of non-yielding assets like gold.
Key Takeaways:
- Gold Outperforms: Gold has outperformed both stocks and bonds in 2024, despite the Federal Reserve’s high interest rate environment.
- Economic Weakness Favors Gold: As the economic outlook weakens, gold’s appeal as a safe haven asset is likely to increase.
- Gold vs. Bitcoin: Bitcoin is still ahead of gold in 2024, but its recent sell-off suggests that it may be more susceptible to market volatility.
- Gold ETFs: Investors can access gold exposure through ETFs like the SPDR Gold MiniShares Trust (GLDM) and Abrdn Physical Precious Metals Basket Shares ETF (GLTR).
Gold’s Resilience in a High-Interest Rate Environment
The fact that gold has held its own in a year marked by aggressive interest rate hikes is a significant development. Higher interest rates traditionally make holding non-interest-bearing assets less attractive as investors can earn higher returns elsewhere. This is why gold has often performed poorly during periods of rising rates.
However, John Davi, CEO and CIO of Astoria Portfolio Advisors, explains that gold’s resilience in 2024 is a sign of things to come: "It passed a significant challenge in a high interest rate environment. Now you know the interest rate environment is going to decline. The economy’s weakening. So now this is when gold actually does start to work."
Economic Downturn and the Rise of Safe Haven Assets
Davi’s comments highlight the potential for gold to perform even better as the economic outlook deteriorates. As economic uncertainty grows, investors tend to flock to safe haven assets like gold, which are perceived to be less vulnerable to market fluctuations.
Gold’s historical performance during periods of economic turmoil underscores its role as a safe haven. In the past, gold has thrived during recessions and periods of geopolitical instability, holding its value while other asset classes decline.
Gold vs. Bitcoin: A Battle for Dominance
While gold has traditionally been considered the ultimate safe haven asset, the rise of cryptocurrencies has introduced a new competitor: Bitcoin. Dubbed "digital gold," Bitcoin has experienced significant growth in recent years, attracting investors looking for exposure to the digital economy and potential for high returns.
However, Bitcoin’s performance in 2024, while still ahead of gold, has been volatile. The recent sell-off in August, which saw Bitcoin drop by 14% compared to gold’s 2% decline, suggests that it may be more susceptible to market stress than its traditional counterpart.
Davi suggests that if the economic outlook continues to weaken, gold could surpass Bitcoin to become the top-performing major asset of the year. This highlights the potential for gold to reclaim its position as the preeminent safe haven asset in the face of increasing economic uncertainty.
Investing in Gold: ETFs Offer Access and Convenience
For investors seeking to gain exposure to gold, exchange-traded funds (ETFs) offer a convenient and cost-effective way to diversify portfolios. ETFs track the performance of specific assets, such as gold, and are bought and sold on stock exchanges like individual stocks.
Davi recommends two gold ETFs for investors seeking exposure to the precious metal:
- SPDR Gold MiniShares Trust (GLDM): This ETF tracks the price of gold, providing investors with a simple and transparent way to invest in the metal.
- Abrdn Physical Precious Metals Basket Shares ETF (GLTR): This ETF offers exposure to a basket of precious metals, including gold, silver, and platinum. This provides investors with greater diversification within the precious metals sector.
Conclusion: Gold’s Time to Shine
The current economic climate, characterized by volatility and uncertainty, is creating a favorable environment for gold. Its historical role as a safe haven asset, its resilience in the face of rising interest rates, and the potential for outperforming other major assets make gold a compelling investment option for investors seeking to protect their portfolios against economic downturns. As the economic landscape continues to evolve, gold’s appeal as a safe haven asset is likely to grow, attracting investors seeking to preserve wealth in a turbulent world.
