Gold is Golden - How High Can the Price Rise?

Gold’s performance over the past two and one-half decades has been nothing short of golden. Gold’s bull market began in 1999 at the $252.50 bottom, and each correction has been a buying opportunity. In August 2024, gold became a ten-bagger as the price appreciated over the $2,525 level. In September, gold eclipsed $2,700 per ounce.

Gold is the world’s oldest means of exchange or hard currency. The Bible has hundreds of references to the precious metal. Today, central banks worldwide hold gold as an integral part of their foreign currency reserves, which they have added to those holdings over the past years. Central banks, governments, monetary authorities, and supranational institutions validate gold’s role in the global financial system. Gold’s value transcends borders and political ideologies, and its ascent is a commentary on fiat currency values.

Gold’s bull market shows no sign of any retreat. Markets reflect the economic and geopolitical landscapes that support higher gold prices.

What is gold?

• Gold is a chemical element with the periodic table symbol Au.
• Gold is a bright, slightly orange-yellow, dense, soft, malleable, and ductile metal.
• Gold is the world’s oldest means of exchange, making it a commodity and a currency.
• Central banks own gold as an integral part of their foreign currency reserves.
• Gold is an ornamental metal and a critical ingredient in jewelry production.

Why is gold valuable?

• Gold is a large atom comprised of 79 protons and 118 neutrons, making it challenging to produce.
• Producing gold requires immense heat and pressure, which occurs when neutron stars collide. These collisions are rare and do not always produce gold.
• Gold is a scarce element found in specific geological environments and rocks.
• All gold produced in the history of the world could fit into a 20-meter cube.
• Gold’s malleability, shine, and resistance to corrosion and tarnishing make it a highly valuable and precious metal. 

The fundamental case for gold

• Gold has been a means of exchange for thousands of years, far longer than any of government-issued fiat currency, making it a hard asset.
• Central banks worldwide have increased their gold holdings over the past years.
• Annual gold mine production is around 3,000 metric tons or 96.45 million ounces. Source: Statista
• As the chart highlights, annual gold production rose from, 2010 through 2019 but has leveled off over the past years.
• Central banks have been net buyers over the past years.
• The chart highlights the increasing demand for gold from central banks, validating gold’s growing role in the worldwide financial system.
• The increasing potential for a BRICS currency with some gold backing to challenge the U.S. dollar’s role as the reserve currency is a bullish fundamental factor for gold.
• Rising gold prices over the past decades have increased investment demand as portfolio gold exposure has increased. Experts typically recommend a 5-10% allocation.

The technical case for gold in uncharted territory- How high can it rise?

• Gold reached a price bottom in 1999 at $252.50 per ounce. Source: Barchart
• The chart highlights over tenfold ascent to above $2,700 per ounce in September 2024.
• Gold is in uncharted territory.
• The 1980 $875 high, adjusted for inflation, translates to around $3,500 per ounce in 2024, which could be an upside target. 

Many options for gold investors

• The most direct investment route for gold is the physical market for bars and coins.
• Gold futures on the CME’s COMEX division have a physical delivery mechanism. Each 100-ounce contract is worth $270,000 at $2,700 per ounce.
• Gold ETFs that hold physical gold bullion include but are not limited to, GLD, IAU, and BAR.
• Gold mining shares provide exposure to the metal. GDX and GDXJ are diversified gold senior and junior ETF products that own publicly traded gold mining companies.
• NUGT and JNUG are leveraged ETF products that move higher and lower with GDX and GDXCJ, respectively, magnifying their price action on the up and downsides.

Gold’s ascent has made it one of the most attractive investments over the past two and one-half decades. The trend is always your best friend in any market, and gold’s path of least resistance remains high in late 2024. Gold could be heading for a challenge of the 1980 inflation-adjusted high at the $3,500 per ounce level in 2025. Meanwhile, buying gold during periodic price corrections has been optimal, as even the most aggressive bull markets rarely move in straight lines.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!