Investors who sought to protect themselves from threats posed by runaway budget deficits which benefited precious metals such as Gold, as they are seen as a refuge from the impacts of government policy, led to a record rally for the metal.
Gold’s ascent to record-high levels took a sharp breather on Wednesday, plunging over 6.3 percent to trade around $4,178.23 per ounce.
The sudden sell-off, sparked by prospects of trade talks between China and the US, immediately tests the conviction of investors, raising the critical question: Does this dip signal the end of the gold bull market, or is it the tactical correction new buyers have been waiting for?
Investors who sought to protect themselves from threats posed by budget deficits which benefited precious metals such as Gold, as they are seen as a refuge from the impacts of government policy, led to a record rally for the metal.
Individual and institutional investors are piling into gold for a variety of defensive reasons.
“Some are buying gold as a hedge against a possible AI-driven bubble in stocks, citing unease over high P/E ratios and the heavy concentration of mega-cap tech stocks in the S&P 500,” AbdulRauf Bello, portfolio manager at Cowrywise, said.
Gold is being viewed as an inflation hedge to preserve purchasing power amid expectations of the full effects of higher U.S. tariffs.
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Bello also said that the belief that gold can offset the persistent depreciation of the U.S. dollar, whose global confidence has been shaken by high debt levels, is one reason for the rally.
However, the rally is not marked by widespread panic. The CBOE Volatility Index (VIX), a key gauge of market fear, remains low, supported by solid corporate fundamentals and strong U.S. GDP figures.
Oghenerukevwe Odjugo, equity analyst at Schroders, a multinational asset management company, mentioned that three key questions determine whether or not an investor should buy gold today.
“Firstly, do you think we get more or less geopolitical uncertainty in the next two to ten years or however long you want to invest in gold for?” she said,
Oduijo also pointed out that the price an investor pays matters. “The mental challenge with investing in an asset that has risen a lot is, you have to believe it can rise some more. Interestingly, in the last month, the gold price has risen virtually every day! Will the same thing happen next month? ”
Lastly, investors should ask themselves if the decision to buy gold is from fear of missing out, she said.
Tosin Olaseinde, CEO, MoneyAfrica, a personal finance platform, said that with as little as N5,000, $5, or £5, you can start owning a piece of one of the most timeless and trusted assets in history.
The strategic shift towards gold is most pronounced among global central banks, which bought a record 1,136 tonnes of gold in 2022, maintaining a strong accumulation pace in 2023 and 2024.
This action is part of a decade-long pattern of global central banks reducing reliance on the U.S. dollar, shaken by factors like deglobalisation, mounting U.S. debt, and rising deficits.
Morgan Stanley suggests record rally is part of a larger global financial reset. The potential for gold to back stablecoins or digital assets could eventually challenge the USD’s dominance in global trade, further fuelling the gold bull market.
Read also: Gold crosses $4,000 for first time, building on historic rally
The current share of gold (24 percent) in central bank reserves is the highest since 1986, though it still falls short of the 1980 high of 60 percent. Despite this diversification, demand for U.S. Treasuries remains strong, suggesting the dollar’s dominance will not vanish overnight.
In Ghana, gold has hovered around 30% of its reserves for a while. At current prices, the value of gold in Ghana’s reserves is $3.6 billion. Just last year, the same amount of gold would have been worth $2.3 billion.
“Whilst the gold portion of our reserves today can cover 1.7 months of imports, the same amount of gold exactly a year ago would have covered just about a month of imports. In short, gold is a volatile component of our reserve,” Bright Simmons, a Ghanaian social innovator and political commentator, tweeted on his page.
Agnico Eagle Mines (AEM)
A senior Canadian miner operating in low-risk regions with a no-hedging policy, giving investors full exposure to gold prices. Selling at $166.29
Newmont Corp (NEM)
One of the world’s largest gold producers with a strong portfolio of long-life mines across the globe. Selling at $86.95.
Franco-Nevada (FNV)
A royalty powerhouse that funds mines in exchange for a share of their revenue – offering exposure to gold without operational risks. Selling at $217.36
Gold Fields (GFI),
A globally diversified producer with roots dating back to 1887, operating across Australia, South America, and Africa. Selling at $41.85