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Gold futures (GC=F) are hitting record highs, hitting $2,555.2 an ounce on Monday, making a 400-ounce bar worth $1,022,080.
Gold has surged this year, emerging as the world’s second-best performing asset after cryptocurrencies. Its 23% gain so far this year has outpaced the large-cap Nasdaq Composite Index (^IXIC), which itself is up 18%. (The Bitwise 10 Crypto Index Fund (BITW), a proxy for the overall cryptocurrency market, is up 47% this year.)
Gold funds saw their biggest inflows in four weeks, attracting $1.1 billion, according to BofA Global Research, but the overall trend has seen outflows of $2.5 billion since the start of the year, suggesting the underlying strength is coming from inflows outside of traditional funds.
Central banks, especially those in developing countries, are buying up this barbaric relic at a record pace. According to the World Gold Council, central banks bought 290 tonnes in the first quarter alone, surpassing the record set in the first quarter of 2023, and are on track for record central bank gold purchases in 2024, with the amount expected to well exceed 1,000 tonnes.
“Not only does the long-standing trend of central bank gold purchases remain strong, but emerging market banks continue to lead the way,” the Gold Council wrote.
In that regard, Turkey topped the list of buyers this year, purchasing 30 tonnes in the first quarter, bringing its gold reserves to 570 tonnes. China purchased 27 tonnes in the first quarter, its 17th consecutive quarter of purchases and taking its holdings to 2,262 tonnes. Other notable buyers include India, Kazakhstan, the Czech Republic, Oman and Singapore.
The rush by central banks to buy gold has cemented its status as a reserve asset: according to Bank of America, gold has now overtaken the euro as the world’s largest reserve asset, second only to the US dollar, and accounts for 16% of the reserve pool.
The performance of precious metals is due to their unique position as real assets with the lowest correlation to equities across asset classes, making them a safe haven from market volatility and inflation.
“We’re seeing gold being used as an uncertainty hedge,” Tom Bruni, head of market research at StockTwits, said on a recent episode of Stocks in Translation.
Bruni also highlighted that gold’s price volatility is attractive to traders: “Gold’s rise above its 2011 high has attracted a lot of attention from trend followers and technical analysts alike.”
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Investors looking for a deep and liquid gold market have plenty of options, including futures markets, ETFs, and gold mining stocks and ETFs, which tend to be even more volatile than the underlying asset.
“The volatility of the gold price has made it a major trading vehicle through gold ETFs and also mining stocks,” Bruni said.
Separately, BofA highlighted how the current gold price rally is different from others this century and offers a glimpse into the potential for a future bull market.
The bank noted that even though this is the third big increase in gold prices in the past 20 years, “households are missing out on this rally.” The first two rallyes, from 2004 to 2011 and again from 2015 to 2020, saw big inflows into gold ETFs. But assets in gold bullion and gold miner ETFs fell by $6.4 billion over the past year, according to Bloomberg data and calculations by Yahoo Finance.
But if last week’s massive inflows continue to gain momentum, the trend could signal that the worst is about to happen for gold buying by retail, institutional and central banks. Why?
“Money is one of those things that runs on atmosphere,” Bruni said.
In Yahoo Finance’s “Stocks in Translation” podcast, Yahoo Finance Editor Jared Blikre cuts through the market chaos, noisy numbers and hyperbole to bring you key conversations and insights from across the investing landscape, giving you the critical context you need to make the right portfolio decisions. Find more episodes on our video hub or watch on your favorite streaming service.
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