The East vs. West Battle: Who’s Really Driving Gold Prices in 2024?
Over the past two years, the East has been leading the charge in pushing gold prices higher, breaking away from the traditional Western pricing model. However, Western investors have now taken control and have been pushing gold prices higher since June 2024.
Western investors are shifting their focus from speculative trading to viewing gold as a safe haven asset. This shift is significant because Wall Street has historically had minimal exposure to gold. As a result, gold prices have surged by over 30% year-to-date.
The key to understanding gold prices lies in identifying the marginal buyer, who ultimately sets the price. Historically, Western institutional supply and demand have dictated gold prices, with the East playing a stabilizing role. However, recent trends show that the East is becoming a dominant force in the gold market.
The awakening of the East has been marked by increased central bank buying, particularly by China and Saudi Arabia, driven by geopolitical tensions and financial instability. This shift has caused a decoupling of gold prices from traditional pricing models like the 10-year Treasury Inflation Protected Securities (TIPS) yield.
While the East had been leading the gold market, Western investors have made a resurgence since June, driving up gold prices and increasing gold ETF inventories. This shift has caused a breakdown in the correlation between gold prices and the TIPS yield, signaling a change in market dynamics.
Despite Western investors taking the lead, the gold market remains tight, with the East still showing strong interest in purchasing gold. This dynamic has created a fast-rising market, with investors in the West contributing to the price surge.
The shift in Western investor behavior from speculative trading to viewing gold as financial insurance has been a key driver of the recent price increases. This change in sentiment has led to a positive outlook for gold prices, with Western investors continuing to drive up prices.
In conclusion, the battle between the East and West for control of the gold market has led to significant price movements in 2024. Understanding these market dynamics can help individuals make informed decisions about their finances and investments. Why Top Investment Advisors Recommend Owning Gold in Your Portfolio
Investment advisors have long recommended having a gold allocation between 0 and 1%, but recent events have made the case for owning physical gold even stronger. Despite rising inflation, geopolitical tensions, and fiscal policy concerns, many large institutions are still not investing in gold, creating room for price upside.
In a recent survey, North American investors revealed that one of their barriers to owning gold is the lack of participation from other institutions. With Wall Street underweight gold, there is significant potential for price appreciation once more entities start allocating a substantial share of their portfolios to the precious metal.
Even Bank of America has acknowledged that gold may be the last “safe haven” asset standing, as concerns over U.S. debt levels continue to grow. With Treasurys facing risks, traders, including central banks, are increasingly turning to gold as a perceived safe haven asset.
Looking at the long-term ratio between credit and gold, historical trends suggest that we are in the early stages of a gold bull market. Every time the ratio between U.S. monetary gold and the dollar money supply has reached a bottom, a gold bull market has followed, indicating a potential rise in the gold price in the future.
In conclusion, factors such as geopolitical tensions, high debt levels, lofty equity valuations, and currency debasement all point to the importance of including gold in your investment portfolio. As the financial system becomes more unstable, gold can provide stability and trustworthiness to your assets.
Analysis: It is crucial to consider adding gold to your investment portfolio as a hedge against inflation, geopolitical risks, and unstable financial markets. By allocating a portion of your portfolio to gold, you can protect your wealth and potentially benefit from future price appreciation in the precious metal. Don’t overlook the potential benefits of including gold in your investment strategy.