Global gold rush sees investors adamant despite rising prices

ONOME AMUGE IN LAGOS

The price of gold has been on a sparkling run in 2024, increasing by 12 percent year-to-date. However, contrary to expectations that gold’s bullish run could be curbed by market saturation and gleaming price increase, reports indicate that the allure of the precious metal remains strong  as investors continue to add it to their portfolios, as if under its spell.

The frenzy for gold seems to have struck a chord with investors, who are clamouring to get their hands on the precious metal like prospectors in a modern-day gold rush.

The World Gold Council, in its gold demand trend for the first quarter of 2024, observed that central banks continued to buy gold at record pace in a quarter that saw the gold price reach a series of record highs.

“Bar and coin investment was firmer, offsetting continued outflows from ETFs. Inclusive of sizable OTC buying by investors, total gold demand increased 3% y/y to 1,238t – the strongest first quarter since 2016,” the report stated.

In the eyes of investors worldwide, gold is looking like a glittering investment option with a potential for steady price rise over the long term.  According to market data, amid the turbulence of global markets, investors have sought safe haven in the arms of gold, driving a rally that pushed spot prices to a record high of $2,449.89 on May 20, fueled by safe-haven demand and persistent central bank buying.

Nigel Green, the chief executive of deVere Group,  a major international financial advisory and asset management firm, in his assessment of the gold market, noted that there has been a striking 35 percent surge in clients worldwide seeking to boost their exposure to gold this year.

Green, in a statement made available to Business a.m., observed that a growing number of investors are considering increasing their gold holdings in their diversified portfolios. He noted further that the allure of gold is not just its historical importance, but also several current factors that together signal a bright future for the precious metal.

According to Green, the appetite for gold among investors is growing in sync with a number of interrelated factors, which combine to form a solid argument for a robust investment strategy. Among the top reasons cited by investors for investing in gold is the increasing demand from advanced economies.

Despite gold’s soaring prices, central banks in developed countries are increasing their gold purchases, as observed by Green. The financial services expert noted that central banks seem to be enticed by gold’s long-term value, its ability to perform well in times of crisis, and its diversification benefits.

Green stated: “Emerging market central banks have historically held gold for similar reasons, especially since the 2008 financial crash. Now it seems richer countries are, too, increasingly adopting the same strategy.

“China’s continuous gold buying spree is a clear indicator of its strategic move to diversify its reserves.

“By reducing its dependence on the US dollar, China aims to mitigate the risks associated with dollar-centric economic policies, sanctions, and geopolitical tensions. This strategy is part of a broader effort to elevate the yuan’s status on the global stage, thereby challenging the dollar’s hegemony.”

Green observed that while China has been known for its significant gold buying, Turkey and other nations in the Middle East have been piling up their own reserves of the precious metal. Turkey, in particular, has been one of the top buyers of gold in recent years, aiming to protect its economy from the storms of currency volatility and external financial pressures.

Notably, a collective march towards financial security and stability, with less reliance on the US dollar, is fast emerging as nations worldwide accumulate gold. The move by countries such as China, Turkey, and nations in the Middle East to strengthen their gold reserves also reflects a shift away from dollar hegemony. This trend, according to Green, is likely to drive the price of gold higher as demand grows.

As it stands, the gold rush is on, and investors across the globe are rushing to tap into the precious metal’s potential. From advanced economies to emerging markets, from China’s strategic diversification to a shift in commodity pricing, from geopolitical uncertainty to rate cut expectations, investors are citing a number of factors as the driving force behind increasing gold in their portfolios.

The deVere Group CEO explained that nations are becoming increasingly wary of the US dollar’s dominance as a tool of geopolitical and economic influence. As the dollar’s stability and reliability as a global currency becomes questionable, countries are flocking to gold as a safe-haven asset to secure their financial future.

Green stated further: “For example, countries like Russia and China have been actively promoting the use of their own currencies for oil and other commodity transactions.

“Geopolitical uncertainty is another critical factor driving investors’ decisions to invest in gold. The upcoming elections in major economies such as the US, the UK, and France add layers of unpredictability to the global economic outlook.

“Political uncertainty often leads to economic volatility, and gold has historically performed well in such environments.”

Data shows that the turmoil of the 2020 US elections sent markets reeling, with investors turning to gold for safe harbour. Analysts foresee future elections producing similar volatility, as the outcomes have the potential to alter economic policies and global trade in unpredictable ways.

Green noted that by holding gold, investors hope to hedge against these uncertainties and protect their overall portfolio from potential downturns.

“Also, expectations of interest rate cuts by the US Federal Reserve, and global central bank peers, lower the opportunity cost of holding gold, as lower rates reduce the returns on interest-bearing assets. This environment makes gold more attractive to investors,” he added.

As the global economic and political landscape remains volatile, Green predicts that gold will continue to rise in value, underpinned by its appeal and proven resilience during turbulent times. Despite a steadily upward movement in price, the precious metal continues to be a beacon of hope for investors, as its price, guided by the uncertainty of the current environment.

Roger Silk, CEO of US-based Sterling Foundation Management, LLC, adds his perspective on the undying appeal of gold to investors.

Silk, in a Business a.m. interview, underscored the fact that unlike fiat money, which can be created or destroyed by governments or central banks, gold has a historic track record of holding its value over time, making it immune to the volatility that fiat currencies often experience.

Amidst the futuristic landscape shaped by the advent of AI, Roger Silk, CEO of Sterling Foundation Management, LLC, asserts that gold will remain a constant, impervious to the radical disruptions of modern technology.

“Gold has retained its central monetary role since the time of the Pharaohs. I don’t see why AI would change that,” he stated.

In his elucidation of gold’s perennial status as ‘real money’, Silk highlighted its monetary dominance over the past three millennia, with central banks and governments alike hoarding and desiring the precious metal.

According to Silk, gold stands apart from other commodities as a scarce and indestructible store of value, immune to the vagaries of government-induced monetary turbulence.

With the spotlight shining on gold and investors scrambling for its sparkle, Afreximbank has seized the opportunity to encourage African countries to exploit the opportunity  as an avenue to economic stability.

Afreximbank, in a report titled “The Ongoing Gold Price Rally: Macroeconomic Implications for African Producers”, advises African countries that are significant producers of the precious metal to harness its shining potential in the medium term, and forge a value chain of enduring prosperity in the long-term.

The report predicted that gold prices could shine bright for years to come, creating a golden opportunity for the African continent, where gold production has already generated substantial foreign exchange earnings and fiscal receipts, while providing employment opportunities in the producing countries.

Afreximbank’s report calls upon African governments to capitalise on gold’s glittering potential by investing in long-term infrastructure and social programmes, while addressing the pitfalls of illegal mining.

The Afreximbank report, however, noted that while gold plays a vital role in the exports and GDP of several African economies, the precious metal is not without volatility, creating a rollercoaster of macroeconomic implications that African governments must navigate with prudence and foresight.

“While windfall export receipts resulting from increased gold revenue will improve fiscal accounts, it is key to manage them carefully to avoid any extra spending that could destabilise the macroeconomic environment. The growth effect has remained subdued, and more effort may be needed to boost economic growth,” the report stated.

According to the World Gold Council, as of 2023, North African countries held the most gold as a reserve asset, with approximately 446 tonnes, with Algeria holding 174 tonnes, Egypt holding 126 tonnes, Libya holding 117 tonnes, Morocco holding 22 tonnes, and Tunisia holding seven tonnes. Elsewhere on the continent, South Africa held 125 tonnes, Nigeria held 21.4 tonnes, Mauritius held 12.4 tonnes, Ghana  held 8.7 tonnes, while Mozambique held four tonnes.

Amidst the golden harvest of the African continent, the World Gold Council advised African central banks to harness the gleaming potential of high gold prices. It pointed out that by storing their golden treasure or making strategic purchases on the global markets, these institutions can amplify the golden glow of their reserves, shoring up their financial strength and securing a bright future for the African continent.