I concluded my November 26 Barchart article on gold writing:
Since the turn of this century, buying gold on price corrections has been optimal, and I expect that trend to continue. Therefore, I am a scale-down buyer of gold and gold-related assets during the current correction, leaving plenty of room to add on deeper declines over the coming months. I believe gold will find another higher low above the Q4 2022 low before it resumes its ascent to even higher highs.
Gold fell to its latest low of $2,541.59 on the continuous futures contract on November 14. The leading precious metal remains below the October 20 record $2,801.80 high as a stronger dollar and steady to lower long-term bond prices are sending negative signals to the gold market. Currency and debt markets can be critical factors for the path of gold prices, but over the past years, gold’s ascent has ignored the dollar’s strength and high interest rates.
Gold consolidates
Gold’s retreat from the late October high at just over $2,800 per ounce is nothing new. Gold has routinely corrected after reaching new peaks, but the latest move lower has not interrupted the long-term bullish trend.
The twenty-year continuous COMEX gold futures chart highlights gold’s ascent and downside corrections.
The six-month daily chart of nearby February COMEX gold futures shows a 9.25% decline from the October 30 $2,826.30 high to the November 14 $2,565.00 low. At the $2,670 level, gold is below the midpoint of the trading range as the precious metal consolidates and digests the latest move to a new nominal record peak.
Central banks keep buying gold
Central banks and governments validate gold’s role in the global financial system as they own the precious metal as an integral part of foreign currency reserves.
Central banks continue to add to gold reserves in 2024.
The chart shows that India, Turkey, Poland, and China added to their gold reserves in 2024 as of October 31, 2024. The data could be a bit misleading, as China and Russia are leading gold-producing countries and have been adding to reserves over the past years. China and Russia consider strategic commodity holdings as state secrets, and they are likely vacuuming in domestic production, adding to holdings and avoiding reporting the increases.
The bottom line is that demand from central banks, governments, and monetary authorities over the past years has supported gold prices, causing them to rise to record levels.
Geopolitical uncertainty underpins gold
Gold is a rare metal with some industrial and fabricated demand applications. However, it has a long history, dating back thousands of years, as the ultimate hard currency. Gold tends to appreciate during inflationary periods, and it is a safe investment haven asset during global turmoil. In 2024, wars in Ukraine and the Middle East, deteriorating relations between Washington and Beijing/Moscow, China’s reunification plans for Taiwan, and the bifurcation of the world’s nuclear powers create the uncertainty that has supported rising gold prices.
The trend remains bullish and is always your best friend- The dollar and long rates are mixed
The trend is always your best friend in markets and remains bullish in gold. After reaching a $252.50 per ounce bottom in 1999, gold prices have appreciated with every correction a buying opportunity.
The quarterly chart of the continuous COMEX gold futures contract illustrates gold’s trend despite the most recent correction. If the trend holds, the current price dip will be another buying opportunity.
Gold ETFs and gold mining ETFs that will rise and fall with the yellow metal
The most direct route for a risk position or investment in gold is the physical market for gold bars and coins. Gold futures provide a path of ownership as they have a physical delivery mechanism.
In 2004, the first gold ETF product, the Gold SPDR (GLD), began trading. GLD holds physical gold bullion, is available to stock market investors, and is the most successful commodity ETF. At $244.86 per share, GLD had over $74.237 billion in assets under management, trades an average of over six million shares daily, and charges a 0.40% expense ratio.
The quarterly chart dating back to 2004 shows that GLD has done an excellent job tracking gold physical and futures prices.
Two other ETFs that own physical gold and trade on stock exchanges are:
- At $50.08 per share, the iShares Gold Trust (IAU) had over $33.6 billion in assets under management. IAU trades an average of nearly 4.7 million shares daily and charges a 0.25% management fee.
- At $26.17 per share, the GraniteShares Gold Trust Shares (BAR) had over $870 million in assets under management. BAR trades an average of over one million shares daily and charges a 0.17% management fee.
Gold mining shares tend to offer leverage to the gold price, outperforming gold on the upside and underperforming when the price corrects lower. Two liquid and diversified gold mining share ETF products are:
- The VanEck Gold Miners ETF (GDX) owns a portfolio of publicly traded senior gold mining companies. At $36.55 per share, GDX had over $13.76 billion in assets under management. GDX trades an average of over 17.75 million shares daily and charges a 0.51% management fee.
- The VanEck Junior Gold Miners ETF (GDXJ) owns a portfolio of publicly traded junior gold mining companies. At $46.96 per share, GDXJ had over $4.965 billion in assets under management. GDX trades an average of over 4.58 million shares daily and charges a 0.52% management fee.
Two ETF products provide even more leverage to gold mining shares. These products can experience time decay as they employ options and swaps to turbocharge the price action in GDX and GDXJ, making them only appropriate for short-term trading purposes.
- The Direxion Gold Miners Bull 2X ETF (NUGT) provides leverage to the GDX ETF. At $40.39 per share, NUGT had nearly $541.65 million in assets under management. NUGT trades an average of over 1.928 million shares daily and charges a 1.19% management fee.
- The Direxion Junior Gold Miners Bull 2X ETF (JNUG) provides leverage to the GDXJ ETF. At $42.05 per share, JNUG had over $279.5 million in assets under management. JNUG trades an average of over 793,000 shares daily and charges a 1.15% management fee.
There are many choices for investing in gold or trading the precious metal. Gold’s bull market remains firmly intact in late 2024, and the prospects are for higher highs in 2025. Goldman Sachs analysts forecast that gold prices will reach $3,000 next year. Moreover, as I highlighted in my mid-October Barchart article on gold, the 1980 $875 high translates to “over $3,340 per ounce in 2024. With gold in nominally uncharted territory, the inflation calculator for the inflation-sensitive gold price could set the upside target in the current environment.”
Adding gold to portfolios during price corrections has been optimal since the beginning of this century, and I expect that trend to continue in 2025.
