When Will the Gold Rally Lose Momentum? | Chief Investment Officer

Now is gold’s time to shine—as an investment. The yellow metal, a favorite refuge asset, has vaulted ever higher this year amid such global anxieties as inflation and the U.S. debt-ceiling crisis.

At $1,981 per ounce, as of Friday, gold is near its recent nominal record level, $2,299, set in mid-2020 during the pandemic’s onset. (Adjusted for inflation, the record was set in 1980.)

The question remains, though, about how long this zest for the glittering metal will persist. After all, gold is a commodity and a notoriously volatile one. The bearish take is that, once the factors pushing it upward subside, the enthusiasm for gold will peter out.

Case in point: Gold shot up in 2011 amid the last federal debt default standoff and a European debt crisis. When these two problems got resolved, gold tumbled—and did not return to its 2011 level until the pandemic spooked investors in 2020.

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The World Bank projects that gold will finish this year at $1,900 (below today’s price) and slump further to $1,750 at the end of next year. Its economists wrote in an analysis: “In 2024, gold prices are projected to decrease by 8% as the global economy begins to recover gradually and inflationary pressures recede.”

Another bearish scenario for gold has it slipping to $1,616 by year-end. This turns on a fall of inflation toward 2% and the Federal Reserve’s insistence on maintaining a hawkish line. The scenario is sketched out by investment firm WisdomTree’s Nitesh Shah, head of commodities and macroeconomic research in Europe. In fairness, Shah also has a possible bullish forecast in which gold keeps on elevating, to $2,314 at 2023’s end. In the optimistic take, inflation will not fall as much and the Fed will cut rates.

Meantime, gold looks like the place to be. The ebbing of the dollar’s strength has contributed to gold’s rally: The precious metal, denominated in U.S. dollars, benefits when the buck dips because gold becomes more affordable and buyers in other, now relatively stronger, currencies rush in, thus bidding up its prices.

Gold slid for much of 2022 as the dollar appreciated. But by late last year, the greenback declined—and gold took off. Other factors bolstering gold are still-high inflation (prompting investors to flock to bullion to protect their portfolio values) and international turmoil, ranging from the grinding Ukraine war to the prospect of a U.S. Treasury default. Also, central banks are enlarging their gold stores, which helps support the commodity’s price. Gold, as a long-time haven investment, should do well if the long-awaited recession occurs.

SPDR Gold Shares, the world’s largest exchange-traded fund for the metal, also is near its all-time high, set in 2020. The ETF, which is backed by physical gold (as opposed to shares of mining companies), closely tracks bullion prices globally. Investments continue to pour into gold ETFs, with net inflows of $824 million in April.

Ah, but as history shows, nothing lasts forever.