In 1999, gold reached rock bottom at $252.50 per ounce. At the end of 2023, the price was over eight times higher. The Bank of England sold half the U.K.’s reserves below $300 per ounce at the turn of this century. Ironically, London is the hub of international gold trading. While the U.K. government at the time declared gold as a barbarous relic from yesteryear, few other countries parted with gold reserves. Over the past years, central banks, monetary authorities, and governments have been buying gold hand-over-fist, increasing reserves of the metal with the longest history as a means of exchange.
Gold closed 2023 at over $2,070 per ounce as the bull market continued. As gold celebrates its quarter-of-a-century anniversary in a bull market, the prospects for higher prices remain intact.
Gold chalks up another bullish year
The continuous COMEX gold futures contract settled at $1,819.70 at the end of 2022.
The twenty-year chart shows gold futures did not trade below $1,800 per ounce in 2023 and were 13.3% higher at the $2,062.40 level on December 29. Gold has made higher highs and higher lows this century, with the bull market entering its twenty-fifth year in 2024.
Economics favor higher gold
Gold reacts to interest rates and currency factors. The U.S. is the leading economy, and the U.S. dollar is the world’s reserve currency. A strong dollar tends to weigh on gold, as does rising interest rates.
Meanwhile, gold held well in 2023 when rates rose to the highest level since 2007and the dollar index went along for the ride on the upside. In October, when rates and the U.S. dollar peaked, gold fell to just over $1,800 per ounce, where it found a bottom, settling the stage for the over $280 per ounce rally.
The ten-year chart of the U.S. 30-year Treasury bond futures shows the decline to 107-04 in October 2023 and the bounce that took the futures above 125 in December.
The three-year chart of the U.S. dollar index highlights the rise to over 107 in October and decline to near the 100 level in December.
Bonds and the dollar are moving into 2024 in bullish trends. Lower rates and a weaker U.S. currency are economic factors supporting gold as the bull market celebrates its twenty-fifth anniversary.
Geopolitics are bullish
Markets reflect economics and geopolitics, and gold is no exception. Wars in Ukraine and the Middle East, the bifurcation of the world’s nuclear powers, and a highly contentious U.S. election that will determine foreign and domestic policies for the coming years create the uncertainty in which gold thrives.
Meanwhile, the world’s central banks that validate gold’s role in the worldwide financial system have been buying and adding to their reserves. Moreover, the BRICS bloc, looking for an alternative to the U.S. dollar to circumvent sanctions, could roll out a BRICS currency with gold backing. The bottom line is the geopolitical landscape is even more bullish than the state of the global economy going into the new year.
Higher highs on the horizon
The long-term gold chart dating back to the mid-1970s shows the quarter-of-a-century bullish trend.
The chart highlights that gold has made higher lows and higher highs since the 1999 U.K.-inspired bottom. Historical volatility below the 14% level signifies gold’s slow and steady bullish trend, as it is a highly liquid market.
Gold futures’ open interest at the end of 2023 was at the 498,118 contract level. At $2,060 per ounce, the value of COMEX gold futures was around $102.6 billion. Meanwhile, the market caps of the three leading gold ETF products that hold physical bullion were:
The combined market caps of the three physical gold ETFs of nearly $86 billion highlight the market’s liquidity. However, the open interest value at $102.6 billion, and the market caps of the three gold ETFs are far smaller than Bitcoin’s over $885 billion market cap.
Will gold mining stocks take the lead in 2024?
The prospects for gold remain bullish as the market heads in 2024, and those prospecting for and producing the metal should benefit. Gold rose 13.3% in 2023.
The chart shows the VanEck Gold Miners ETF (GDX), which owns shares of the leading publicly traded gold mining companies, rose 8.2% from $28.66 at the end of 2022 to $31.01 per share on December 29, 2023.
Meanwhile, the VanEck Junior Gold Miners ETF (GDXJ) rose 6.5% from $35.65 to $37.91 per share in 2023.
While the miners underperformed gold in 2023, 2024 could be a different story if the metal continues to make higher highs. Gold mining shares often provide leverage, which could allow them to catch up with gold and outperform the precious metal in 2024.
If 2024 is another gold year, mining shares could shine and outperform the metal on a percentage basis.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
