Gold has been the way to go in the 21st century. While the S&P 500 has produced a solid 7% annual return (when adjusted for inflation) through the first 24 years of the 2000s, investing in gold topped that, at 7.8%.
And yet gold has been a little less shiny for the past few years—it topped $2,000 an ounce for the first time in mid-2020…but nearly four years later, it remains at only slightly over $2,000, generating virtually no profits while stocks have climbed.
But there is good news! Frank E. Holmes, CEO and CIO of US Global Investors, believes the rest of 2024 will be a tremendous time for gold. In fact, he thinks the precious metal could possibly soar all the way to $3,000 an ounce, up nearly 50% from current levels.
When Bottom Line Personal recently asked Holmes what’s behind his optimism, he listed several factors. Here is his case for gold in 2024…
This is a year of global governmental uncertainty. Perhaps you’ve heard that there’s a US Presidential election toward the end of this year. What you may not know, however, is that much of the rest of the world is in a similar situation. About 70 countries that, together, are home to about half of the world’s population are holding elections in 2024. It’s being called the biggest election year in global history. What does that have to do with gold prices? Election years are times of political uncertainty, and gold is widely considered a secure investment for such times, in part because its value generally is not linked to any one government’s decisions. This year of elections likely will spur global demand for gold, pushing prices upward.
US historical trends are favorable for gold. As of press time, it’s difficult to say with any certainty which political party will come out ahead in November…but history suggests that gold is likely to come out ahead this year. Historically when there’s a Democrat president up for reelection, a Republican Congress and falling interest rates, gold tends to have a good year…and gold-mining stocks tend to have a great year. That sounds a lot like 2024, where we have a Democrat incumbent…interest rates are likely to come down….and while Congress isn’t Republican, it is divided, with Republicans holding a narrow majority in the House and Democrats a narrow majority in the Senate.
Global governments are printing and spending massive amounts of money. In recent years, an economic philosophy known as Modern Monetary Theory (MMT) has taken hold with decision makers in many of the world’s most important economies, including those in the US. At the core of MMT is the idea that nations can and should print as much money as they need without worrying about whether their spending exceeds their revenue or increases their national debt. The resulting global money-printing binge eventually will undermine the value of national currencies, pushing people toward the safety of assets that are not linked to those currencies—in particular, gold. There’s no sign that the MMT-driven global money-printing spree will ease anytime soon—governments have become addicted to spending money that they don’t have.
Many global economies soon will start contracting—and, in fact, they may have already. The Purchasing Managers’ Index (PMI), a key statistic compiled based on monthly surveys of supply-chain managers across a range of industries, has proven to be a reliable leading indicator of economic trends. When a nation’s PMI is above 50, its economy is expanding or will begin to expand soon. When its PMI is below 50, its economy is contracting or soon will, which can lead to increased uncertainty among investors. As of press time, the US has a Composite PMI over 50, but many important world economies have PMIs below 50, including most of the Eurozone, Canada and Australia. Countries that have contracting economies tend to print even more money in an effort to rev up their economies, and that weakens their currencies. Result: Investors in those countries often are driven to buy gold, and that pushes up the price.
US defense budgets are increasing. In late 2023, Congress approved a huge $886 billion defense budget for 2024. Expect an even larger budget for 2025 to be put forward late this year. The global military challenges in the headlines—Ukraine and the Middle East—are not the primary reason the US military budget is rising. The main concern is that the world’s second most powerful country—China—appears to be shifting from being an economic rival of the US toward being a military rival. The US has little choice but to modernize and upgrade its military to prepare for this threat, virtually ensuring that the American government will have to continue printing huge amounts of money for the foreseeable future. When central banks print money excessively, it can lead to inflationary pressures as the supply of money increases faster than the supply of goods and services. Investors may turn to gold as a store of value to protect their wealth from the eroding effects of inflation.
Cultural forces point to increased gold demand across much of Asia. In many Asian cultures, buying gold is considered not only a way to preserve wealth but a key part of the culture—gold is widely worn as jewelry and given as gifts by those who can afford it. An increasing number of people in Asia can afford it—standards of living have risen rapidly in recent decades across many massive Asian nations, including India, Indonesia and the Philippines. And unlike in many parts of the world, these nations still have strong birth rates, so there’s no demographic reason to expect this demand to ease. What’s more, 2024 is the Year of the Dragon across many Asian cultures—a year that’s associated with prosperity and good fortune, which should further spur gold investment in the Asian world.
The supply of new gold has probably peaked. Typically, when demand for a commodity increases, companies quickly start to produce more of that commodity. Supply soon catches up with demand, and the price spikes subside. But there’s not much that gold-mining companies can do these days to increase supply. Due to environmental regulations and other government requirements in many key gold-producing nations, it can take an astounding 30 years for mining companies to get from discovering a new mine site to accessing a meaningful amount of gold from that site. You don’t have to be an economist to know that prices rise when supply can’t keep up with demand.
Gold is the closest thing there is to what crypto was supposed to be. Cryptocurrencies such as Bitcoin raced to huge values during the pandemic because many investors liked the idea of holding a decentralized asset that wasn’t tied to the actions of any nation’s government or central bank. The value of many cryptocurrencies eventually crashed back to Earth, revealing the massive risk of investing in a new, untested and intangible asset. Like crypto, gold is a decentralized asset largely outside the control of governments and central banks…but unlike crypto, it is a tangible asset that has an extraordinarily long track record—people have valued gold for thousands of years.
For investors: A reasonable rule of thumb is to have about 10% of one’s portfolio in gold. Consider dividing that investment roughly evenly between gold-mining stocks (5%) and gold bullion or jewelry (5%) and rebalancing quarterly. One standout among gold-mining stocks…
Franco-Nevada (FNV), a royalty and streaming company based in Canada that focuses on gold with its diversified portfolio of cash-producing assets. Recent share price: $121.05.*
Or consider investing in a mutual fund or exchange-traded fund (ETF) that invests in gold-mining or royalty stocks, such as our US Global GO GOLD and Precious Metal Miners ETF (GOAU).
If you want to invest in gold itself, consider…
SPDR Gold Shares (GLD), which tracks the price of gold. Performance: 7.61% (YTD).
If you want to own actual gold: Costco now sells gold bars online at a very reasonable premium above the spot price of gold—but you will literally get gold ingots and have to determine how to keep them safe. Reminder: Costco often caps the number of bars that each member can purchase.
