Gold’s record run to continue

The price of gold is expected to continue rising this year due to geopolitical uncertainties and the move to renewable energies. 

Ninety-One’s Global Natural Resources strategy Co-Portfolio Manager George Chevely explained that, typically, global uncertainty drives investors to flock to safe-haven assets, of which precious metals are a premier example.

Because of geopolitical tensions, he argues that it is unlikely that the price of gold will decrease to below $2,500 per ounce in 2025. 

“Gold is that hedge against these risks, and it still works really well,” he said.

Gold particularly stood out in 2024 due to Russian, Chinese, and Indian central banks aggressively buying gold to reduce their reliance on the dollar as a reserve currency.

This is because the US has consistently weaponised the dollar’s role as the world’s reserve currency to hamstring ‘rogue’ states economically. 

“Central banks are trying to diversify away from dollar assets on the basis that they have seen what happens in Russia – they upset the US and got sanctioned, and that’s a problem,” Chevely said. 

He expects a breakout in the price of gold because of uncertainty surrounding the impact of Donald Trump’s presidency on tariffs and the war between Russia and Ukraine.

“With these tariffs and policy plans, it is possible to expect inflation to start bubbling up again in the US, and that could cause the Federal Reserve not to cut as aggressively or even hike rates at some stage,” Independent Securities Portfolio Manager Joe Klopper said.

Chevely explained that strong US economic growth, good US-China trade relations, lower inflation, and a strong dollar, which is unlikely, will lead to a decrease in the price of gold.

However, many people, including South Africans, are also investing in gold because they fear missing out, thanks to its strong performance. 

“Demand is still high, and it is growing, as it is typical human behaviour that once the value of an asset goes up, so does interest in owning it,” FNB Wealth and Investments CEO Bheki Mkhize said. 

Mkhize explained that the rise in gold prices has correspondingly increased demand for its Krugerrand offering.

Other new investment products, like gold exchange-traded funds that physically hold the commodity on behalf of investors, have enabled retail investors and institutional investors to increase their exposure to gold without having to store it. 

The relatively liquid market makes it easy to diversify investment portfolios or benefit from a rising gold price. 

Gold has had a good run since 2019 with the precious metal’s price rising 85% over the period. 

Recently, global inflation and a subsequent easing of monetary policy by cutting interest rates have led to people investing in gold as a hedge against inflation. 

After starting 2024 at $2,062 per ounce, gold soared to nearly $2,800 per ounce in October 2024.

Chevely explained that global inflation is also expected to be higher than average over the next 15 years, which will also lead people to hedge against it with commodities.

Furthermore, he does not think the tide has turned against commodities yet. 

While some commodities have high prices, Chevely explains that this is not yet reflected in the companies producing them. 

“We see commodities, both energy and metals, pretty positively over the next few years, particularly as we are coming out of an investment cycle where we’ve seen underinvestment in many of these projects.” 

He pointed out that the renewable energy sector also has a high demand for various metals, such as copper, silver, and aluminium. 

“Inventory levels for many commodities remain very low, meaning any unexpected uptick in demand could have a rapid and significant impact on prices,” he said.