Gold prices have spent a good chunk of 2024 setting a string of new all-time highs. After breaking through the psychologically important $2000 level last year, gold started rocketing higher in March and hasn’t stopped since.
There are a few reasons why this could be happening, but I think three of them stand out above all others.
Reason #1: Falling interest rates
In a vacuum, precious metals become more valuable when interest rates decline. Gold obviously doesn’t generate a yield, but its relative attractiveness improves when the yield gap shrinks.
Central banks, for the most part, ended their rate hiking campaigns last year, but the rate cutting cycles are likely to kick off any month now. Switzerland already cut its benchmark rate by a quarter-point in just the past couple weeks and it’s expected that the Fed and the ECB will follow their lead within the next few months.
In fact, this looks like it could be the most coordinated global rate cutting cycle since the financial crisis.
Even the Bank of Japan, which had been signaling a tightening bias for the past few months, now looks unlikely to do anything further this year. With bond buying still in the plans for 2024, you could argue that the BoJ is still in the easing process as well.
In other words, global interest rates are likely to start falling all around the world over the next 12 months and that’s going to make gold look increasingly more attractive.
The markets, however, have been expecting this for a while (maybe sans the Bank of Japan) and it likely wouldn’t explain such a sharp and sudden rally higher. It’s a contributing factor, but probably not the primary factor. Which brings me to…
Reason #2: Instability in Asian currencies
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.