Gold Is Having A Moment – From Geopolitical Unrest To Economic Uncertainty, These Are The Reasons Investors Can't Get Enough Of This Precious Metal

Gold prices are soaring. To get your piece of the precious metal, click here. 

Gold prices have been soaring recently, hitting record highs as investors flock to the yellow metal. At last check, gold was going for $2,342.66 an ounce, up nearly 18% year-over-year. Over the past five years, the price per ounce has risen by 82%. Some industry watchers, including Lear Capital, a leading seller of gold, silver and other precious metals, believe gold has even more room to run, potentially reaching $3,200 an ounce or more by 2027. 

While central banks, institutional traders and well-heeled investors are snapping up gold bars and coins, they aren't the only ones. Costco Wholesale Corp. COST is doing brisk business hawking gold bars to its members. So much so that it had to limit sales to two gold bars per membership. Costco's revenue from gold sales is running at $100 million to $200 million a month, according to one Wall Street estimate.

What's Not To Like?​

So, what's behind this unwavering demand for gold? It turns out there are several reasons. Take its status as a safe haven in times of turmoil, for starters. In the U.S., the national debt is rising, a potentially contentious presidential election is on the horizon and there are ongoing concerns about the economy amid elevated interest rates and persistent inflation. The U.S. economy grew by just 1.6% in Q1 2024, which was much lower than expected. 

Geopolitical unrest outside the U.S. is also driving people looking to protect their portfolios with gold, given the Russia-Ukraine war and the Israel-Hamas war, as well as other geopolitical unrest. To cushion the blow from any downdraft in stocks and bonds due to all the turmoil, investors are seeking alternatives, and gold is a popular one – given that it historically tends to maintain its value in challenging times caused by inflation or conflict. 

Traditionally, when gold prices are rising, the value of the U.S. dollar declines. But that negative correlation has weakened in the current gold run-up, with both assets increasing as investors seek cover. 

Investors Take Cover In Gold

There are several historical precedents to help understand what's driving the price of gold and what to expect going forward. Take geopolitical unrest for one example. In the aftermath of the Sept. 11 terrorist attacks, gold doubled in less than five years to $549 in January 2006 from $272 in August 2001. During the great recession of 2008 and 2009 and shortly thereafter, gold went from $665 in August 2007 to $1,346 in October 2010. The Israel-Hamas war is a prime example of geopolitical risk currently impacting the price of gold. Since that conflict started in early October, gold prices have gained. Meanwhile, despite elevated inflation, gold has been able to outperform. 

It turns out gold may be the quintessential crisis asset, retaining its value through financial and geopolitical calamities. In inflationary times, gold's value tends to rise as the cost of living increases and when the equity markets are taking hits, gold has been known to hold up. The COVID-19 pandemic is a good example – when stocks tanked due to the blowback from the pandemic, gold prices surged. 

The national debt also impacts gold. When the country's debt rises, so too does the price of gold. Following the dotcom stock crash in 2000, gold was trading at a low of $256 an ounce, and the national debt was $6.5 trillion. Since then, the national debt has grown five times higher, which means gold is outperforming the growth in the national debt by a rate of 1.6 times. By 2027, the U.S. Debt Clock predicts national debt will reach more than $45 trillion, up 36% from 2023. If gold outpaces debt growth by 1.6 times, gold could reach $3,200 an ounce by 2027, according to Lear Capital. 

Gold For Diversification 

On top of being a hedge in uncertain times, gold acts as a diversifier beyond stocks and bonds. It's important for investors to spread their investments across different asset classes to protect from any downside, and gold is a popular option. After all, gold and equities tend to have an inverse relationship. When stock prices fall, gold prices tend to go up. So far this year, gold is outperforming stocks. Take the S&P 500. It's up about 7.5% this year compared to gold's close to 18% run.  

That's not lost on investors; from central banks to consumers. They all see the value in gold and, even at record highs, think it is worth owning more. Central banks in particular, have long been voracious buyers of gold, which helps keep prices elevated. In 2022, global central banks purchased 1,083 metric tons, setting a record. The buying spree continued in 2023, with central banks purchasing 1,037 metric tons of the yellow metal. 

So why are central banks stocking up on gold at record levels? For all the reasons investors are: to diversify, shore up balance sheets, and gain liquidity. Gold can be used to cancel government bonds, lowering the central bank's debt on the balance sheet. It's worth noting that global central banks have been expanding their balance sheets for over two decades, and with elevated debt and liquidity levels expected to persist, gold should be in demand for years to come. It also helps that gold is very liquid. Gold holders can easily get loans against it and can sell it for cash in a pinch.

Lear Capital Can Help 

When it comes to buying gold, options abound for investors. You can buy from the U.S. Mint through a network of official distributors like Lear Capital, which has been serving the precious metals market since 1997. Investors can purchase gold coins, bars or invest in funds like the Lear Advantage IRA. It is a self-directed IRA backed by the fortifying power of physical precious metals, including gold, silver and platinum. Another option is investing directly in publicly traded gold companies, such as miners. 

Gold prices are soaring for many reasons. While the party isn't expected to last forever, there's still time to benefit. If you want to learn more about gold and how to get started investing, click here.

Featured photo by Jingming Pan on Unsplash

This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.