Gold is increasingly acting like a growth asset rather than a traditional safe haven, according to Sadiq Adatia, Chief Investment Officer at BMO Global Asset Management. In an interview on June 22, Adatia noted that gold’s behavior this year deviates from its historical role as an inflation hedge and a protection against the US dollar and yields.
“Gold is not behaving as it traditionally does,” Adatia said. “Typically, it serves as a hedge against inflation and market risks, reacting to changes in yields and the value of the dollar.”
He pointed out that in the first half of this year, gold strengthened alongside the US dollar, even without the usual risk aversion. This indicates a shift in why investors are holding gold, with sovereign wealth funds and countries buying it as a store of value for diversifying currencies.
Gold has notably outperformed the S&P 500 over the past six months, gaining 20% compared to the S&P’s 18% rise, despite stock markets reaching new highs. Adatia attributes this surge to several factors, including persistent recession fears, central bank purchases, and increased interest from sovereign wealth funds.
“The consumer interest in gold is also rising,” Adatia observed, citing incidents like Costco selling out of gold bars in the US this year. He attributes this increased demand to concerns about economic downturns and consumer weakness.
Despite gold’s recent strong performance, Adatia doesn’t foresee it continuing to outpace the S&P 500 indefinitely. He points to factors such as a two-month hiatus in gold purchases by the People’s Bank of China and easing inflation data in the US and Canada as reasons for a potential slowdown.
Adatia advises investors to retain gold primarily for its traditional benefits—protection against market volatility, inflation, and currency fluctuations. “Everything else is just an added benefit,” he concluded.
In late June, BMO Capital Markets raised its gold price forecasts by 5%, predicting the metal will not fall below $2,000 an ounce over the next four years. The bank anticipates an average gold price of $2,263 an ounce for 2024, up from a previous estimate of $2,168. By 2025, BMO expects an average of $2,200 an ounce, up from $2,100.
Although BMO expects gold to remain stable through the third quarter, they predict higher prices by year-end, with a fourth-quarter average of $2,350 an ounce. Analysts attribute gold’s resilience to central bank demand and the shift from price-sensitive consumers to asset allocators and mandate-driven central banks. Additionally, China’s efforts to de-dollarize trade are seen as reinforcing gold’s role in the global monetary system over the coming decade.
