Gold is trading at a record high, so high, in fact, that the precious metal’s performance has now eclipsed that of the S&P 500 Index in 2024.
Gold, which tends to have an inverse relationship with interest rates, gained momentum after the Federal Reserve signaled last week that it would likely cut rates later in the year.
Physical gold does not earn interest or pay dividends, and other interest-bearing investments may be more attractive to investors in a high-rate environment. There is no public timeline for how many times the Fed will cut rates in 2024 or when that will happen. But the expectation of interest rate cuts is now creating more excitement around gold.
The price of gold on Monday was $2,330 per Troy ounce, which is 13% higher than the price at the beginning of the year. The S&P 500, an index that tracks the stock performance of the 500 largest publicly traded companies, also got off to a terrific start in 2024, gaining 9.34% to reach its current level of 5,215.
Historically, the stock market (as measured by the S&P 500) has been a better investment than gold. Going back 40 years, the price of gold is up 510% while the S&P 500 is up more than 3,200%. That doesn’t mean stocks will necessarily be the best investment in the future, but their perceived growth potential based on past performance is a big part of why most investment portfolios are allocated much more heavily to stocks. stocks versus precious metals.
If you are interested in investing in gold, keep in mind that experts usually recommend limiting gold investments to no more than 5%-10% of your portfolio. It is considered a safe haven asset that can serve as a hedge against inflation and tends to maintain or even gain value during economic downturns.
During an event Wednesday at Stanford University’s business school, Federal Reserve Chair Jerome Powell said inflation was approaching the central bank’s target level of 2%; however, he noted that the work is “not done yet.” Most officials believe that “it’s probably appropriate to start lowering the policy rate at some point this year,” barring a major change in the economy, he said.
If rate cuts are delayed, this could potentially represent a setback for gold prices. But without a clear consensus on when the cuts might come this year, gold prices are expected to hold steady in the near term.
In addition to interest rate factors, high levels of central bank buying have also boosted the price of gold, experts say. And considering gold’s tendency to perform well in crisis circumstances, the recent escalation of conflicts in the Middle East and the ongoing war in Ukraine could also contribute to the surge in gold prices.
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