It’s one of the hottest trades of the year… and barely anyone is talking about it.
I’m not talking about artificial intelligence stocks. I’m not talking about cryptocurrencies. And I’m not talking about some penny stock you’ve never heard of, either.
I’m talking about gold.
The reality is gold has been on quite a run lately. Gold prices hit a high of over $2,550 per ounce this week and gold is up nearly 22% year-to-date. That outpaces the S&P 500, the Dow and the NASDAQ’s gains of 15%, 7.7% and 13.8%, respectively.
So, in today’s Market 360, I’ll share three reasons behind the rise in gold – and why I expect this rally to continue. Then, I’ll explain a great way to invest profit from the gold rally that’s much easier than running to the nearest Costco and buying gold bars.
Reason No. 1: Purchases by Central Banks Hit a Record in Q1
It’s not just gold bugs and doomsday preppers who are fond of the yellow metal. As it turns out, central banks are, too.
In fact, gold purchases by central banks recently hit a record high. According to the World Gold Council, there were 290 tonnes of gold purchased in the first quarter, just beating the record of 286 tonnes purchased in the same quarter a year ago.
In fact, Bank of America Corporation (BAC) analysts are estimating that gold has surpassed the euro to become the world’s largest reserve asset, second to the U.S. dollar.
Gold appeals to central banks because it diversifies their reserves from domestic currencies (which may be volatile) as well as the dollar. They also see it as a safe haven during periods of economic, financial and geopolitical instability (I’ll have more to say about that in a moment).
Reason No. 2: Physical Gold ETFs Seeing More Inflows
It’s not just central banks that are loving gold right now. Individual and institutional investors are buying, too.
Physical gold exchange-traded funds (ETFs) have seen inflows three months in a row, according to the World Gold Council. In July alone, roughly $3.7 billion piled into physical gold ETFs.
As more investors buy these physical gold ETFs, these funds have to buy more gold and store it. That persistent institutional buying pressure has created a lot of momentum.
Reason No. 3: Geopolitical Uncertainty
Geopolitical tensions are another factor that has driven gold prices higher. Currently, there are flashpoints around the world that could set off a powder keg and impact the global economy.
The Israel-Hamas war and the Russia-Ukraine conflict are two that come to mind.
But there is also uncertainty around central banks. The U.S. Federal Reserve is signaling that it will cut key interest rates in September. But the problem is we’re already seeing the signs of a slowing U.S. labor market and wondering whether it will be too little too late.
Case in point: The unemployment rate was 3.4% as recently as April 2023, but it has since crept up to 4.3%. The U.S. Labor Department announced that 818,000 jobs “disappeared” in the past year (through the end of the first quarter) due to revisions related to people working multiple jobs and/or not paying income taxes. So, instead of creating 2.9 million jobs in the past 12 months, the U.S. economy only created about 2 million jobs. Therefore the unemployment rate is likely going to be even higher.
In other words, if the Fed is unable to pull off a “soft landing” and avoid a recession, then gold will look even better.
Can This Rally Continue?
As long as there is uncertainty in the world, the answer is yes. In fact, if we get a market shock, gold will likely do quite well. So, investing a portion of your wealth into gold could help harden your portfolio against turbulent markets.
Gold has long been a viable hedge against rising inflation and tumbling financial markets, primarily because its value ascends in a chaotic economy. Consequently, regardless of the state of the financial markets or the economy, it makes sense to own some insurance in case a financial disaster strikes.
How to Play the Gold Boom
Now, buying physical gold can be a hassle. You have to find a reputable seller and you need a safe place to store it. So, a much easier way to profit from the gold boom is to buy gold stocks that are leveraged to the price of gold itself.
Because gold companies are leveraged, they can see even bigger gains from just a small change in the price of gold. In other words, a 10% move in gold could cause a 30% gain in a gold stock.
It’s why I recently recommended a new gold-mining stock to my Growth Investor subscribers in the September Monthly Issue. Not only is it well-positioned to profit from the gold boom, but it also boasts superior fundamentals.
In the company’s most recent quarter, it achieved a 20.8% sales surprise and a 15.1% earnings surprise. For the next quarter, the analyst community is now estimating 26.1% sales growth and 111.4% earnings growth. Plus, this gold miner has a history of rewarding shareholders, as it’s paid a dividend every year since 1983 and currently has a 2% dividend yield. So, it offers the one-two punch of income and growth.
For more details, click here and become a member of Growth Investor today.
(Already a Growth Investor subscriber? Go here to log in to the members-only website.)
Sincerely,
Louis Navellier
Editor, Market 360
