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Gold price in the international market recently hit an all-time high of USD 2,500 per ounce on August 16, 2024. We've compiled some interesting data points about this precious metal's journey:
1. Price Journey so far:
- Looking at historical gold price movements this century, it took ~4 years for gold to move from USD 500 to USD 1,000 per ounce (2005-09).
- The next USD 500 price movement came quickly in 1.7 years during the global financial crisis (2009-11).
- Prices then stabilized, and it took around 12.5 years for gold to take the next USD 500 price movement (2011-23).
- The last and most recent USD 500 movement has been the quickest to happen, in just 7.5 months amid global uncertainties (2023-24).
Source: Bloomberg
2. Hedge to Equity?
The precious metal has proved almost a perfect hedge to equity markets during the times of crisis. We have captured below the down-market scenarios where gold has generated positive returns:
Source: Bloomberg
3. Central Banks
Central Banks have maintained the continuity of adding gold to their vault. This year, we have already seen global central banks adding 473 metric tonnes in the first six months which is in-line with the previous 2-year purchases of ~1,000 metric tonnes/year.
Source: Bloomberg
4. The negative correlation between TIPS 10Y and gold price has worked out in this quarter. During this quarter, gold prices rose 7.7%, while US 10-year TIPS went down by 32 bps from 2.11% to 1.79%.
Source: Bloomberg
5. We believe the following reasons are contributing towards the current rally in gold prices:
- Continued voracious buying by global central banks has led to an increase in price of the precious metal. Central banks are maintaining a run-rate of ~1,000 metric tonnes/year since 2022 as compared to an average ~500 metric tonnes/year from 2012 to 2021.
- Ongoing geopolitical tensions amid the Israel-Hamas conflict and Russia-Ukraine war have fueled the demand for a safe haven asset.
- Growing expectations of interest rate cut by the US Federal Reserve has also driven up the recent price movement.
6. Historical Performance (Point to Point):
Source: Bloomberg
Data as of 19-Aug-24. Performance less than 1 year period is absolute and more than 1 year is compounded annualized.
For performance calculation in INR, we have used MCX Exchange Price up to 15 years period, while for 20 years we have converted gold price in USD to INR.
Our View:
From a medium to long term perspective, we continue to remain positive on gold due to weakness in the dollar, expectation of rate cuts, increase in central bank buying and geo-political risks. Disciplined portfolios following asset allocation should have some allocation to gold as it has low correlation to the equity asset class (which gets further lower or negative in times of enhanced risks) and thereby provides a good hedge.
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