While equity markets, particularly the S&P 500, have recently hit record highs, gold has emerged as a standout performer in 2024, according to a recent report by Bank of America (BoA). As gold prices push past $2,500 an ounce, the precious metal has surged approximately 20% this year, outperforming major asset classes.
In contrast, cryptocurrencies have gained 17.7%, stocks have risen by 15.4%, the overall commodity sector has increased by just 1.9%, government bonds are up 0.6%, and the U.S. dollar has seen a modest 0.2% gain year-to-date. Notably, gold’s performance even surpasses that of the tech sector, with the Nasdaq Composite Index up 17%.
Despite a general investor focus on equities and tech stocks, Bank of America points out that gold has experienced the highest inflows in four weeks. Recent data from the Commodity Futures Trading Commission reveals speculative positioning in gold at a four-year high, reflecting growing investor interest.
The rally in gold prices has been fueled by unprecedented demand from central banks during the first half of the year. BoA analysts emphasize that investors should follow the lead of central banks, which have increasingly turned to gold as a reserve asset. According to the analysts, gold now ranks as the second-largest reserve asset globally, at 16.1%, surpassing the Euro at 15.6%, and exhibits one of the lowest correlations with stocks among asset classes.
Looking ahead, BoA suggests that gold could attract further investment as equity markets face increasing downside risks. The analysts forecast potential challenges for the S&P 500 as the Federal Reserve gears up to commence its easing cycle next month. Historically, the first Fed rate cut has often been followed by increased cash inflows in a ‘soft’ landing scenario, with bonds potentially benefiting if conditions are ‘hard.’
Bank of America notes that past speeches by Fed Chair Jerome Powell at Jackson Hole have often preceded declines in the S&P 500, with an average drop of 7.5% over the subsequent three months. Additionally, despite expectations of the Fed delivering the third-largest rate cut in a single year in 2024, further reductions may be necessary due to growing U.S. government debt and the $1.5 trillion in commercial real estate loans that need refinancing in the near future.
