Why gold could rocket to $2,500 amid record bull run

Before jumping on the precious metal's rally, investors need to explore the best ways to include it in their portfolios, experts say

The Gold Souk in Dubai. Gold should be a core component of a well-balanced investment portfolio, experts say. Pawan Singh / The National

Gold bugs are buzzing like never before as the precious metal smashes one record after another.

The price jumped up another 6 per cent in the past month alone to briefly touch $2,300 an ounce for the first time, before dipping to $2,287 at the time of writing.

That's a rise of 25 per cent over six months and more than 75 per cent over the past five years, but this is no flash in the pan.

The gold price is up more than 450 per cent in the past 20 years, as the turbulent start to the millennium has driven demand for the world’s oldest safe haven and store of value.

The dotcom crash, 9/11 terror attacks, financial crisis, eurozone meltdown, Covid pandemic and inflation shock have all handed investors new reasons to hold the “barbaric relic”. Modern investors cannot get enough of the yellow metal.

Before jumping on the back of the latest rally, investors need to ask themselves why gold is rocketing, how long it can last, and what's the best way to get exposure.

Gold shines in tough times, offering opportunities for savvy investors, says Ole Hansen, head of commodities strategy at Saxo Bank.

“Its recent ascent has been fuelled by geopolitical tensions and mounting debt levels,” he adds.

Historically, gold has been seen as a hedge against inflation, which remains a concern despite recent dips.

A major downside is that it doesn’t offer any yield, which makes it less attractive when interest rates rise and investors can get higher yields from rival safe havens like cash and bonds.

Yet, with interest rates expected to fall in May or June, that may soon reverse.

“While short-term consolidation is possible, the outlook remains bullish, with projections extending towards 2,500 [an ounce] later in the year,” Mr Hansen says.

Gold, like most commodities, is priced in US dollars. This means demand tends to rise when the dollar weakens.

However, today’s surge has come despite a strong dollar. If the greenback was to weaken, the gold rush could intensify.

There are sound, long-term reasons to hold gold in your portfolio, says Andrew Naylor, head of Middle East and public policy at the World Gold Council.

“Gold is a long-term strategic asset and should be a core component of a well-balanced investment portfolio,” he adds.

As a physical asset, it has no counterparty credit risk, assuming you buy it outright.

“It is also highly liquid, with more than $160 billion of gold traded every day. This makes it relatively easy to buy and sell,” Mr Naylor says.

Everybody understands gold. “You could take your physical gold to the souks of the Middle East, Chinatown in Bangkok, or the gold districts in Hanoi and easily sell it for cash,” he adds.

It is particularly prized in the GCC.

“The GCC is a major wealth management centre – particularly the UAE – and demand is rising as the region grows as a wealth management hub,” he says.

All these factors could drive the gold bull run, says Adrian Ash, director of research at online precious metals marketplace BullionVault.

“Compared to the stock market, gold seems far from overpriced.”

The speed and size of gold's movement has also trigged a spate of speculative betting on gold futures and options contracts among hedge funds.

Yet Mr Ash warns that “gold's hot uptrend” could cool in the coming months.

“Household demand in India, the world’s second-largest gold-consuming nation, is already declining following recent price highs.”

Summer will bring the usual “closed period” in the Hindu calendar, with no weddings or auspicious dates to stimulate sales, Mr Ash says.

“That will change in the autumn, which brings the main festival for gold purchases – Diwali.”

Central banker demand for gold is far from seasonal, as China and other emerging markets diversify away from their US dollar holdings and into gold, despite today’s high prices.

“The People’s Bank of China, already the biggest single source of demand, has become a buyer of gold seemingly at any price,” Mr Ash says.

The People’s Bank of China holds massive dollar and euro reserves and is desperate to diversify, having seen how US and EU sanctions have locked Russia out of global financial markets.

“Unlike stocks, bonds or cash in the bank, gold's value doesn't rest on anyone else's promises or permission,” Mr Ash says.

Chinese households are also spending record sums on gold jewellery, coins and small bars amid the country’s economic slowdown, stock market slump and low returns on cash.

Sales have also soared in Turkey and Egypt, which have suffered significant currency devaluation and hyperinflation, says Vijay Valecha, chief investment officer at Century Financial.

“Additionally, with Eid approaching, there is a natural increase in jewellery purchases in the GCC region,” he adds.

Tourists visiting the UAE often load up on gold, as prices are more competitive, plus they do not have to pay VAT on purchases, he explains.

“Some jewellery stores, particularly online retailers, are now offering buy now, pay later options for gold purchases.”

Buying physical gold coins, bars and jewellery brings tangible ownership and potential inflation protection, but comes with storage costs, security risks and lower liquidity.

Owners also have the cost and bother of shopping around to get the best price when they sell, Mr Valecha says.

“Gold exchange-traded funds [ETFs] are cheaper and more convenient, but the investor doesn’t own the underlying gold directly.”

Experts typically recommend buying physical gold ETFs, where the issuer buys actual gold, rather than using derivatives or other financial instruments to reflect goal price movements.

Popular ETFs include SPDR Gold Shares, the largest and most liquid of all, iShares Gold Trust and Invesco Physical Gold.

A new option is emerging – investing in the blockchain, Mr Valecha says. “Gold-backed cryptocurrencies provide a way to gain exposure to the value of gold while leveraging the benefits of blockchain technology.”

Gold souq in Dubai - in pictures

Dubai Gold Souq in Deira is gearing up for a busy Eid Al Fitr. All photos: Pawan Singh / The National

Gold prices have reached record highs in 2024

The surge in global gold prices is being driven by factors such as anticipated US interest rate cuts, speculation, people seeking a safeguard against geopolitical uncertainty and major spending in China

Traders say they are still selling relatively well despite the price rises for several reasons including the increase in tourist arrivals since Dubai opened up swiftly after the Covid-19 pandemic

The traditionally busy Eid season that starts around now before the formal holiday is expected to help sales

People rest at the gold souq on a Ramadan afternoon

Lavish displays of gold at the historic souq

These cryptocurrencies are typically operated by centralised issuers and can represent physical gold in various forms such as bars, coins, certificates or securities.

“Some are pegged to the price of gold, while others allow for redemption into physical gold.”

Tether Gold (XAUt) is a cryptocurrency issued by Tether that is pegged to gold.

“Each XAUt token represents ownership rights to specific gold bars, and token holders can verify the gold they own through a website,” Mr Valecha says.

Other examples include DigixGlobal (DGX), which allows fractional ownership of physical gold through tokens, and Paxos Gold (PAXG), which provides access to gold from traditional markets and can be traded as futures contracts.

GoldCoin (GLC) is a peer-to-peer cryptocurrency that aims for decentralisation and economic freedom.

“It is backed by a ratio of 1,000 GoldCoins per ounce of gold, making it less volatile than other cryptocurrencies. The token can be redeemed for physical gold or converted back to fiat currency,” Mr Valecha says.

The Perth Mint Gold Token (PMGT) is another example, representing the tokenised version of the GoldPass certificate backed by physical gold stored in the Perth Mint's central bank. It can be easily traded for tokens or redeemed for gold or fiat equivalents.

Gold has a history going back 4,000 years. Yet humans still come up with new reasons for holding it, and new ways of buying it. And it remains impossible to ignore, even today.