By Brien Lundin
While the speculative fervor has temporarily abated for gold, the fundamental, long-term drivers continue to support the price.
Every year at this time, we find ourselves having to think twice before writing a date.
If you’re like me, you’re going to be writing 2024 in a lot of places for a while. In fact, it’s going to be even tougher this year, because 2025 is one of those big numbers that tend to spark some reflection.
It’s hard to believe that 2000, the year when the last secular bull market in gold began, was a quarter century ago. It doesn’t seem that long ago.
Of course, the current bull market began only about 10 months ago... and it feels like much longer to me.
That’s because we’ve had so many remarkable moves over that time frame. The first six weeks were marked by a relentless rise, but then the price trend started to get bumpy as investor sentiment ebbed and flowed with the prospects of a Fed pivot.
More recently, gold has been largely range-bound as safe-haven demand has supported the price while Bitcoin and other factors have robbed it of speculative flows.
The three-month price chart above illustrates this trading range after the big sell-off that took the price to the low $2,500s.
But think about that statement: A big sell-off took the price down to the $2,500s. A year ago, who would have thought we’d be talking about that price as support?
It’s hard to be too depressed about gold’s lackluster action when you consider that it’s gained about 30% over the past year, and that the fundamental drivers for the metal remain firmly in place.
Great Commentary...From An Unlikely Source
When I recently saw a flurry of posts about an article on gold from Politico, a publication more famous for left-oriented political commentary, I initially didn’t even bother to read the piece.
But curiosity finally got the better of me...and I was pleasantly surprised. In fact, there wasn’t a single big point made that I disagreed with. Entitled “‘It’s a sign of impending wars’: Why a tense world is betting on gold,” the article focused on how central bank buying has been a big driver behind gold’s rally.
OK, maybe I’d disagree with the headline pushing fears of war, but that’s a direct quote from one of the sources...and there were lots of other great quotes and comments in the piece, like...
“As war, ideology, and protectionism divide the world into distinct blocs, developing countries, in particular, are hoarding bullion to prepare for the day when a global financial system dominated by the U.S. and Europe collapses, and a new one can take its place.”
And...
“Nor is it just about the fear of hostilities and sanctions, but also the failing reliability of the states that built the postwar global financial order. Both the U.S. and Europe are laboring under growing debt burdens that look unsustainable in the long term, as the International Monetary Fund highlighted at its annual meeting. With U.S. debt now at 124 percent of GDP and rising fast, Goldman’s Thomas noted, ‘many central banks have the bulk of their reserves in U.S. Treasury bonds, and policymakers may be increasingly concerned about their exposure to fiscal risks in the U.S.’”
And...
“...gold’s neutrality and immutability make it a suitable anchor for a parallel financial system still being built: one that the U.S. will not be able to dominate or manipulate.”
One area where I did disagree with Politico’s take is where the report notes that gold has been rallying even while interest rates have been rising. The author credits speculators following the central banks’ lead and ignoring that headwind, rather than noting that rising yields are a direct reflection of gold buyers’ concerns with the growing U.S. debt and related fiscal risks.
Still, it’s an outstanding summary, and well worth your read.