Hold on to your hat, and your gold: WGC’s John Reade
- 3 October 2024
A sure winner from the rising global geopolitical heat and massive levels of uncertainty hanging over many commodity markets? John Reade says look no further than gold.
“The fact that it’s [gold price] hit 30 new all-time highs this year probably tells you a lot about the geopolitical landscape that we’re in at the moment,” the World Gold Council’s senior market strategist said in London amid escalating alarm at metals forums about volatile economic and trade conditions.
“Gold is, at its heart, a geopolitical mineral, and essentially something you could throw into the weather forecast as a barometer of what's going on in the world.
“I guess there's three ways I'd like to think about gold and geopolitics.
“The first is a recognition that central banks have doubled the amount of gold that they’ve purchased since 2022 and I think that is as a direct consequence of the transition that we’re going through from the US being the hegemonic power towards something which will be more shared around the world with China and potentially other economies.
“That’s having major stresses … and that’s been reflected in moves by central banks who want to add gold to their reserves.”
Reade said China’s pivot from property sector economic dependence to the next big thing – which may or may not be the green energy transition – was also radiating stresses that had gold highly attractive to Chinese investors.
“That is both investors onshore but also for the money that has exited China over the last few years with high-net-worth individuals, family offices throughout Asia, buying unprecedented quantities of gold,” Reade said.
“The final thing I would say is that people often see the gold price go up after a geopolitical event.
“I’m not talking about these longer-term stresses and strains that are taking place, but a war, an invasion, an explosion somewhere: something unexpected.
“And what I would say, after having sat up through lots of crises over the decades that I've been following the gold market, is that the first reaction of the gold price is to go up. By the time most investors realise what’s going on the price has probably gone up as much as it’s going to go and over the next few weeks and months, assuming the world doesn’t end, then the gold price comes down.
“So be very careful, from a short-term tactical perspective, in jumping on gold just because bad things have happened overnight because, to be frank, you have probably missed it.
“And if the world does end you’ve probably got more important things to worry about.
“We would absolutely say that that sort of reaction justifies why gold should be in your portfolio already, because it will help you as other asset classes come under pressure from that event.
“But just be careful about climbing in [late].”
Reade suggests, with a smile, that forecasting the gold price a week, a month, or year out, is a bit like trying to predict the weather: a mug’s game.
“What I can say, in general, is a declining interest rate environment in the United States is positive for gold. It’s particularly positive for gold if those declining interest rates are associated with a recession, which they're not so far. Let's see how that one plays out,” he said.
“But in general, lower interest rates and a weaker dollar is usually good for gold. And if I look at the forecasts from macro economists out there that can give numbers, then I think most people think the dollar will probably decline five-to-10% over the next year or two, and the rates will come down quite a lot as well.
“So that should be a positive environment for gold.
“If we think about the very long term – five, 10, 20 years – work that we’ve done shows that gold should deliver US inflation plus 2-to-3%, so 2-to-3% real returns, which is interesting if you think that gold was up 15% last year, and it's up 25% plus this year.
“Again, it fits into this environment [in which] the geopolitical temperature is rising.
“[But] I wouldn’t take the sort of gains that we’ve seen over the last two years and project them forward. Gold’s done really well over the last couple of years and that sort of pace of increase is unlikely going forward.”
*John Reade, who joined the World Gold Council in 2017, will provide a valuable gold market update and insights at this year’s IMARC 2024 conference in Sydney.
