Perspective By Rich Checkan
As February winds to a close, so do celebrations and festivals of the lunar new year… the Year of the Dragon has officially begun!
While more recently the gold spot price has been most heavily influenced by major geopolitical tensions and the impact wars in Europe and the Middle East have had on the global economy, as well as lingering economic effects of the Covid-19 Pandemic, and U.S. monetary policy, it is worthwhile to take a note from Chinese culture and consider adding gold to your portfolio in the Year of the Dragon.
Looking to the East
In Asia, particularly in Chinese culture, customs and traditions for the lunar new year often revolve around attracting good fortune, wealth, and longevity in the coming year. Families clean their house from top to bottom in order to sweep away any ill fortune and to make way for incoming good luck. Another common tradition involves gifting younger loved ones with money in red envelopes, which could often include gifts of gold coins and gold jewelry. The idea is to pass on the wealth of gold to future generations.
Gold coins, known as “yuanbao,” are particularly popular gifts during this time of year. These coins are shaped like an oval with a square hole in the center, symbolizing harmony between heaven and earth. Not only during new year celebrations, in Chinese culture, gold has been revered for centuries as a symbol of prosperity and success, both the color gold and the metal itself. This belief in hard assets like precious metals as a store of wealth has persisted into modern times.
Today, China has grown to become both the world’s biggest producer and the world’s biggest consumer of gold. China and India, the world's two biggest gold buyers, together account for more than half of total global demand, and upward movement in the Shanghai Gold Exchange has positive influence on the global bullion market.
There’s a real reason why the cultural and financial importance of owning material wealth in the form of gold is still a cornerstone of Chinese society today. Unlike in many western countries, younger investors are steadily accumulating gold as a property market downturn, weakening equities, and lack of faith in the currency are driving demand for gold amidst uncertainty in the world’s second-largest economy.
Rangebound But Ready
Recently, the gold spot price ticked up after a weeks-long downward trend. Still, after gaining 13% and briefly touching a new all-time high in 2023, gold has been trading in a relatively narrow range just above $2,000 an ounce for 2024 so far. Gold declined marginally, just 0.2% in January. Typically, the precious metals market tends to show strength in Q1, and while we may see a short-lived bump from seasonal buying, the long-term outlook indicates that gold may be rangebound for a while yet.
Monetary policy in the face of lingering inflation is a big driver. The path back to target inflation levels has some bumps ahead, and any indications from the Federal Reserve about earlier than expected rate cuts were quickly disregarded. The Fed is now widely expected to keep interest rates elevated until at least June after a series of positive economic reports and negative inflation reports. Holding interest rates high for a longer period of time will be bearish for gold.
Central bank gold buying reached record levels and was a large driver in gold’s rally over the past few years. Meanwhile, the escalating conflict in the Middle East has been bullish for gold, continuing to drive safe haven demand. The U.S. has plans to announce major sanctions against Russia after the recent death of Russian opposition leader Alexei Navalny, which may also shake up global economic stability.
These oppositional forces continue to push and pull gold spot prices within the current range. But this isn’t necessarily a bad thing… rangebound trading is providing an extended opportunity for investors to buy gold at these levels.
When Will Gold Rise?
Many believe that what it will take for gold to rise significantly is a dynamic change in monetary policy… when the Federal Reserve finally begins to slash rates, this will be extremely bullish for gold.
Some analysts are looking at other demand drivers as well, and believe gold could reach $3,000 an ounce by 2025. Citi analysts point at a trend of de-dollarization that is slowly picking up steam across central banks, which could ramp up central bank gold buying even further as confidence in the U.S. dollar as the world’s reserve currency falls.
And while global recession seems less likely now, it’s still a possibility as rising consumer debt and commercial real estate debt are showing the cracks in the foundation. The economy is not as strong as equities market performance would have you believe, with stock market gains from last year mainly buoyed by the “Magnificent Seven” stocks; Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Nvidia (NVDA), Meta Platforms (META), Tesla (TSLA), and Alphabet (GOOG/GOOGL). They far outperformed the other 493 companies in the S&P 500, weighting the index and driving it to record highs in a way that disguises a more disturbing economic picture. This equities bubble is set to pop.
Dragon-like Prosperity
So, with troubling instability on the horizon, how will you protect your wealth? Build wealth like a dragon.
In stark contrast to the gold-hoarding dragons of medieval Europe, Chinese dragons were perceived as benevolent creatures. But dragons across all cultures are a symbol of vitality and prosperity closely associated with wealth.
So, when planning your portfolio allocations, give some thought to strengthening your allocation of gold. Now, while gold is rangebound, is an auspicious time to take advantage of relatively low spot prices. Look for temporary dips in the spot price and act on them. Come mid-year, we may finally see the anticipated interest rate cuts from the Federal Reserve, and this should trigger the next big move in gold, so don't wait!
Owning gold and holding it as a hedge against inflation and uncertainty is one of the best ways to ensure future prosperity, not just in the Year of the Dragon, but in the long term.
Discover a wide range of gold bullion bars and coins at assetstrategies.com if you’re ready to purchase gold now or give us a call at 1-800-831-0007 for a free consultation today!
