As we navigate the currents of 2024, gold stands resilient amidst economic flux and geopolitical tensions, poised to reclaim its record highs, while its counterparts face challenges to replicate its enduring allure, observes bullion analyst Sanjiv Arole.
Napoleon Bonaparte, ascending during the French Revolution, became a renowned military leader. Seizing power in 1799, he crowned himself emperor in 1804, ruling for over a decade. His ambition led to the ill-fated invasion of Russia in 1812, met with defeat by the Russian army and brutal winter. Similarly, Adolf Hitler, rising within the Nazi party, sought European dominance through blitzkrieg tactics, sparking World War II. Despite his conquests, Hitler’s invasion of the Soviet Union faced a similar fate, ending in failure and the partition of Germany after the war.
In the realm of precious metals, milestones mark their journey. Gold reached a historic peak in September 2011, hitting $1,921 per ounce, a significant leap from its previous high of $850 per ounce in 1980. Likewise, silver surged to nearly $49.5 per ounce in April 2011, just shy of its 1980 peak of $50 per ounce, preceding gold’s ascent. Platinum achieved its peak of over $2,200 per ounce in 2008, while palladium hit its high of over $3,440 per ounce in March 2022.
History often repeats, albeit with twists. Following its peak of $1,921 per ounce in 2011, gold plummeted to $1,180.57 per ounce by April 2013, shocking many investors who had bet heavily on its continued rise. This led to a tumultuous period, with some individuals fleeing the country in an attempt to evade consequences. Gold’s price further declined to around $1,046 per ounce in 2015 before showing signs of recovery. Notably, it surpassed its 2011 high during the pandemic, reaching $2,075.47 per ounce in 2020.
Since 2019, gold has fluctuated between $1,319.94 and $2,075 per ounce. Geo-political tensions, high inflation, and global economic conditions have supported its price, while headwinds include the US Federal Reserve’s focus on inflation control through interest rate hikes, a strong US dollar, and sanctions against Russia affecting gold, palladium, and diamond supplies due to the Ukraine conflict.
In recent years, gold surpassed $2,000 per ounce and peaked at $2,075 during the pandemic in August 2020. By December 2023, it reached a new high near $2,150, hitting $2,147 per ounce (intra-day). In early 2024, gold remains comfortably above $2,000 per ounce, with anticipation surrounding the Fed’s decision on rate cuts by the end of January.
However, other precious metals in the basket, being industrial metals as well, couldn’t mirror gold’s performance. They bore the brunt of global economic slowdowns, contrasting with gold’s safe haven status, especially evident during the pandemic. While gold surged to fresh highs, silver remained stagnant around $20-25 per ounce, with occasional peaks around $30-31 per ounce. Despite being dubbed “poor man’s gold,” silver fell below $20 per ounce and never approached the $49-50 per ounce range, failing to align with gold’s safe haven appeal.
Silver’s ascent was hindered by its industrial metal classification, dragging its performance down. Platinum faced challenges as gold overshadowed its precious metals realm, while palladium dominated the industrial metals sphere. Previously, platinum held the highest value among gold, silver, and palladium, but the landscape shifted drastically. Presently, gold commands more than double platinum’s rate, and platinum’s price even falls below palladium, hovering around $900 per ounce.
Palladium, once the star performer, surged to its peak around $3,440 per ounce in March 2022 due to the Ukraine conflict and supply concerns. It even outstripped gold’s price by double and platinum’s by triple at that time. However, its momentum has waned, currently standing at less than half the price of gold and just above platinum. Sanctions and limited Russian production have severely impacted palladium availability, prompting increased substitution with platinum and further depressing its price.
Let us try and analyse the scenario in 2011 and compare that with the scenario now in 2024. Then vs. Now!
Then
The 2011 peak prices of gold and silver originated from the 2008 sub-prime lending crisis in the US, which led to Lehman Brothers’ bankruptcy and a global financial meltdown. This crisis deepened the recession until December 2009, marking the most severe economic downturn since the 1930s Great Depression, affecting most parts of the world except India and China. Central banks, including the BoE and the US Fed, implemented quantitative easing (QEs) until well into 2009, injecting around $2.1 trillion into the US economy. The impact of the great recession as well as the QEs on the precious metals basket on their prices is as follows:
- Gold: The average gold price rose by over 28% to around $1,571.52 per ounce in 2011as compared to the price in 2010. In early September gold scaled its then all-time high of $1,921 per ounce (intra-day). In spite of the high price, jewellery demand fell by just 2.2%. In fact, overall gold demand rose by 0.6%, buoyed by a 37% rise in physical bar investments and a spectacular increase in official sector purchase by 378 tonnes to 455 tonnes in 2010 as well as 2011 in spite of over 30% rise in the gold price.
- Silver: The annual average silver price surged by 74% to a record of $35.12 per ounce. Approaching the 1980 all-time high of $50 per ounce, silver peaked above $49 per ounce in April 2011. Despite decreased demand in many sectors due to the high price, coin and medal demand rose by 18.9% to 118.2 million ounces (3,677 tonnes). In India, even with silver prices surpassing Rs.70,000 per kilogram, imports surged by 36% to 130 million ounces (4,045 tonnes). Investors continued purchasing silver in anticipation of further price increases, holding onto their investments until silver crossed the Rs.70,000 per kilogram mark again recently.
- Platinum-Group Metals (PGMs): In 2011, both platinum and palladium experienced significant price movements. Despite platinum’s average price rising to $1,722 per ounce, it ended the year down 23% at $1,537 per ounce, losing its status as the most expensive precious metal. Demand for platinum increased by 7%, driven by auto-catalyst, jewellery, and investment sectors. Palladium, with an average price of $733 per ounce, rose for the third consecutive year, peaking at $858 per ounce, and saw a 2% growth, reaching an 11-year high of 8.82 million ounces (274.2 tonnes) due to strong auto-catalyst demand despite reduced jewellery demand.
Now
The 2020 pandemic initiated a global recession in February following a year of economic slowdown, characterised by stagnant growth and consumer activity. Covid-19 lockdowns and precautions exacerbated the crisis, prompting quantitative easing measures exceeding $5 trillion. While intended to stimulate growth and alleviate recession, much of the injected funds flowed into stock markets and commodities. Consequently, gold surged to a new peak of $2,075 per ounce in August 2020.
Silver struggled to surpass $30 per ounce, averaging around $20.69 per ounce in 2020, while platinum floundered below palladium’s average price of $2,197 per ounce. Following the pandemic, US inflation surged to 40-year highs, prompting the Federal Reserve to implement aggressive interest rate hikes, capping precious metal prices until the second half of 2023. Despite fluctuations, gold oscillated between $1,614 and $2,075 per ounce until December 2023, occasionally surpassing $2,000 per ounce. Palladium, the leading precious metal since 2016, surged to $3,440.60 per ounce in March 2022 amid the Ukraine conflict.
Currently, gold is only precious metal close to its all-time high of $2,147 per ounce it touched fleetingly on 9th December 2023. Palladium is around $1,000 per ounce, even dipping below $900 per ounce not too long ago. Platinum is just below palladium and continues to hover around $900 per ounce in recent times, even going above the palladium very briefly in the last couple of months.
Gold benefits from multiple factors: the Ukraine conflict, reminiscent of the 2008 financial crisis where US banks, including Credit Suisse, faced collapse and were absorbed by UBS; economic deceleration; volatile oil prices; surging post-pandemic inflation; apprehensions of a Western recession and Chinese slowdown; global geopolitical tensions beyond Ukraine, encompassing the Israel-Gaza conflict and Middle Eastern shipping corridor tensions; elevated US bond yields and external debt; the hefty cost of servicing US debt; US unemployment rates; economic indicators; US dollar fluctuations; exuberance in US stock markets; central bank acquisitions; and demand for gold ETFs.
In contrast to 2011, gold currently stands on firmer ground, having weathered a brief recession followed by QE measures. Unlike the deep recession of 2008, recent economic challenges have been less severe. Gold has demonstrated resilience against successive interest rate hikes in the past two years. With the US Federal Reserve hinting at potential rate cuts, gold appears poised for further gains, driven mainly by geopolitical tensions and ongoing conflicts.
So, what is in store for the precious metals basket in 2024?
In India, gold imports surged above 1,000 tonnes annually around 2011, driven by investor anticipation of further price increases. Despite high gold prices, imports continued to rise, contributing to a balance of payments crisis. However, the current account deficit is now below 1%, reducing the likelihood of import restrictions. In 2011, gold reached $1,921 per ounce post-recession and QE.
One may expect increased gold or silver imports into India even if their prices reach all-time highs. In 2011, gold surged to $1,921 per ounce post the 2008-2009 recession and subsequent QEs. In 2020, a brief recession was followed by $5 trillion in QE measures. With potential rate cuts in 2024 and persistent geopolitical tensions, gold appears poised to take off. Despite the US avoiding recession in 2023, the possibility looms for 2024, potentially driving gold prices beyond the $2,147 per ounce mark. However, the same cannot be said of other precious metals in the basket.
Finally, gold seems destined for record all-time highs in 2024. It seems to be an inevitable outcome. But, when everyone predicts gold to soar much higher, one has to look out for pitfalls, as there is still that 1% chance of things going awry. Overall, gold is on a roll!