This week, the price of gold broke through historical highs, with spot gold hitting a new high of $3,990.85 per ounce on Tuesday, while gold futures prices surpassed the $4,000 per ounce mark. At the same time, analysts point out that investors are setting historical records in allocating funds to gold through exchange-traded funds (ETFs).
Many investors have become increasingly cautious about the high valuations in the stock market and see gold as a “safe haven” to hedge against uncertain economic policies and geopolitical tensions. According to data from the London Stock Exchange, gold prices have risen by 51% this year, marking the largest increase since 1979.
In addition to Federal Reserve rate cuts and U.S. political uncertainty, the wave of central bank gold purchases and a resurgence of interest from institutional investors have also supported the surge in gold prices.
Industry experts suggest that there is still room for gold prices to rise. Ed Yardeni, President of Yardeni Research, stated on Wednesday, October 8, that “our current target is for gold prices to reach $5,000 by 2026. If gold prices continue their current momentum, they could reach $10,000 by the end of 2029.”
Renowned hedge fund manager Ray Dalio advises investors to allocate up to 15% of their portfolios to gold, citing weakening confidence in paper assets and fiat currencies due to debt levels, inflation, and government expenditures.
Despite the recent strong performance of gold, caution should be exercised as prices have surged too rapidly within a short period, with a $500 increase over 25 days, overshooting its 200-day moving average by about 25%. Nicky Shiels, metal strategist at MKS Pamp Group, warns that historically, premiums exceeding 20% are usually short-lived and anticipates a possible pullback to $3,600.
Yahoo Finance interviewed four market experts who highlighted four key risks to consider when investing in gold: price risk, speculative risk, opportunity cost risk, and fraud risk.
Darrell Fletcher from Bannockburn Capital Markets notes that buying at high levels in anticipation of further highs is a challenging strategy. He emphasizes that gold is recovering from decades of decline and has become a diversification asset.
Alex Tsepaev from B2PRIME Group views gold primarily as a stabilizer in asset allocation, rather than a short-term profit tool. He suggests that gold should not be seen as a driver of excess returns but as a stabilizer in a diversified portfolio.
Thomas Winmill from Midas Funds emphasizes that gold is a commodity subject to macroeconomic, political, and industrial factors that are often difficult to predict. Investors should be aware of the potential losses brought by volatility.
While gold remains an unpredictable asset despite its recent performance, it is crucial to note that investing in gold locks funds and may lead to missed profit opportunities in other high-growth assets, such as AI stocks. The opportunity cost of holding gold can be significant.
Most investors prefer diversified investments, accepting lower returns to mitigate the risks of relying heavily on a single investment. Lower gold allocations can maximize the opportunities in other assets.
Brett Elliott, Director of Content and Search Engine Optimization at APMEX, highlights the lack of strict regulatory oversight in the gold market, which may reduce trading complexities and lower gold premiums but may also present opportunities for fraudulent activities. This includes selling low-quality or counterfeit gold coins and bars, fictitious gold mining stocks, or low-priced acquisitions of gold jewelry.
Experts universally recommend adopting a long-term mindset and low proportion allocation strategy in the high range of gold prices to mitigate risks. Gold remains a key asset to hedge against inflation and market uncertainty, but caution should be exercised against chasing blindly after spikes in prices.