Gold didn’t generate a lot of investor excitement on its way to record high earlier this week—but the metal could likely see more gains in the new year.
The metal finished 2023 at $2,062.40 per troy ounce, gaining 13% for the year after hitting a record close of $2,081.90 on Wednesday.
“Little enthusiasm or fanfare & virtually no interest yet from Western institutional investors,” wrote Fred Hickey, the editor of the High-Tech Strategist in a Wednesday post on X, the former Twitter.
Hickey, a longtime follower of the gold markets, noted that the
SPDR Gold Shares,
the largest physical gold exchange-traded fund which holds approximately $57 billion in gold assets under management, has been stuck at around 878 metric tons of gold—little changed from its size in September 2019, when the metal stood at $1,500. The ETF’s gold holdings were down slightly during 2023.
Gold’s rally has been driven by hopes of lower U.S. interest rates and a weaker dollar, which is down about 5% from its highs around Oct. 1. The metal was also helped by China’s central bank—which was the largest gold buyer in 2023—and purchases by other central banks.
Central banks have been the largest buyers of gold this year, amassing 800 metric tons of the metal in the first three quarters of 2023, according to the World Gold Council. That trend should continue, as central banks seek alternative assets to the dollar and other paper currencies.
To gold bulls, the lackluster demand from individual investors and institutional buyers is a favorable sign because the market has rallied without their participation. If they get involved, the argument goes, gold could add to its recent gains.
January tends to be a strong month for gold prices, the World Gold Council noted recently.
“Since 1971, gold has had an average return of 1.79% in January – almost three times its long-term monthly average. Over the same period, gold has had positive January returns almost 60% of the time, and nearly 70% of the time since 2000,” the World Gold Council. Gold was higher in January 2023 but declined in January 2022.
Part of the bull case for gold is that the Federal Reserve is expected sharply reduce short rates in 2024 by as much as 1.5 percentage points. And lower rates—particularly lower real interest rates—tend to be bullish for gold, which carries no yield.
Another sign of lackluster investor sentiment on gold is the lagging performance of gold stocks.
Barrick Gold
gained 5% in 2023 while
Newmont,
the other industry leader, fell 13%. The No. 3 company,
Agnico Eagle,
rose 3%. The
VanEck Gold Miners ETF
(GDX), meanwhile, returned about 10% in 2023 and finished the year at $31, or nearly 15% below its May high.
Mining stocks are supposed to outperform gold in a rising market due to operating leverage—revenues tend to rise more quickly than costs. But investors have been souring on some of the leading miners due to concerns about costs, mine quality, and production shortfalls.
Earlier this month, Barron’s named Barrick one of its favorite stocks for 2024, arguing that it offered a cheap play on a rising price of the metal. That doesn’t look like it will change.
Write to Andrew Bary at andrew.bary@barrons.com
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