Sticky Inflation Boosts Gold
May 13, 2024
Read Time 6 MIN
Monthly gold market and economic insights from Imaru Casanova, Portfolio Manager, featuring her unique views on mining and gold’s portfolio benefits. An expanded PDF version of this commentary, including fund specific information can be downloaded here.
Gold: reaching new all-time highs (again)
Gold’s strength continued in April, with the spot price of the metal repeatedly reaching new highs throughout the month. Gold traded at an intraday high of $2,431 per ounce on April 12, and closed as high as $2,392 on April 19, which coincided with the S&P 500 Index1 and the NASDAQ Composite Index2 lows for the month. Gold pared back gains as the broader equity markets bounced back, but still managed to outperform, closing at $2,286.25 on April 30, up $56.38 per ounce or $2.53% during the period. This compares to monthly losses of more than 4% for the S&P 500 and NASDAQ, and a gain of 1.60% for the U.S. dollar (DXY Index3).
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Inflation in the driver’s seat for now?
Changing expectations around the U.S. Federal Reserve’s (Fed’s) monetary policy path were a major driver of gold prices in 2023. Gold generally found support as the odds of Fed rate cuts increased and vice versa. This year, however, we are starting to see a decoupling between Fed path expectations and gold. The odds and number of cuts expected in 2024 have been reduced significantly in the first months of the year, yet gold keeps making fresh highs. We think this may be driven by renewed concerns around inflation.
In April, for example, an inline jobs report for March, combined with higher-than-expected CPI figures that showed an uptick in inflation in the U.S. (3.5% year-over-year in March vs. 3.2% in February), translated to U.S. consumer sentiment declining by more than forecast and inflation expectations increasing. The University of Michigan’s preliminary April Consumer Sentiment Index4 dropped to 77.9 from 79.4 in the previous month and compared to the median estimate by economists of 79. Consumers estimated prices will climb at an annual rate of 3.1% year on year, up from the 2.9% expected a month earlier and the highest so far this year. Later in the month, Q1 2024 preliminary annualized quarter-over-quarter GDP came in at 1.6%, well below expectations of 2.5%, while the Core Personal Consumption Expenditures Index5 was up 2.8% year-over-year versus estimates of 2.7%. Anecdotally, the use of the word “stagflation” in the headlines of news articles and reports appears to have ticked up significantly during the month.
Expectations for slower economic growth and higher inflation are generally supportive of gold prices. A pullback of the broader equity markets, like we had in April, and rising global geopolitical tensions provide further support, as investors turn to gold as a safe-haven and portfolio hedge/diversifier.
Western investment demand still absent
Yet, western investors appear mostly absent in the gold markets today, with recent strength fueled by central banks, and demand out of Asia, primarily China. The World Gold council reported that global gold bullion backed ETFs lost 114 tons during Q1 2024, a 4% decline in total holdings.* Interestingly, while North America and Europe saw ETF outflows, Asian listed funds had inflows during the quarter, the fourth consecutive quarter of inflows.
Gold ETF Flows and Assets
Source: World Gold Council. Data as of March 31, 2024.
Investment demand, the main driver of gold prices historically, has been in decline during this last gold rally. We believe the return of Western investment demand supported by increased risks to the U.S. economy and a deeper correction of the equity markets, has the potential to drive gold prices even higher. How much higher? A simple calculation based on historical data can provide an estimate of future potential gains. The last time gold bullion backed ETF holdings were at around current levels was in late 2019. By late 2020, about a year later, these holdings had reached peak levels and the gold price had risen over $400 per ounce. Thus, If ETF holdings were to return to their historical peak (reached in 2020) and based on the same historical correlation between these holdings and the gold price during that period, it is not unreasonable to assume that gold could climb another $400 per ounce from present levels. That would take the gold price to approximately $2,700 per ounce, based on April’s closing price, and to about $2,800 based on its most recent high. Coincidently, that would put gold right around the inflation adjusted price reached in January 1980, when gold traded at an intra-month high of $850 per ounce (equivalent to a CPI-adjusted $2,819 per ounce as of end of Q1 2024).
INIVX | International Investors Gold Fund - Class A
Gold Price – Nominal vs. CPI-Adjusted
Source: VanEck, Bloomberg. Data as of March 31, 2024. Note: January 1980’s intra-month high of $815 (in nominal terms) would be equal to approximately $2,819 in today’s (2024) dollars.
Of course, that would require the continued support of the current drivers of demand—particularly the official sector. Central banks have emerged as an important driver of gold prices over the last two years. They appear to be on a longer-term trend of gold buying. Central banks net purchases of gold in Q1 2024 (290 tonnes) represented the highest quarterly figure on record since 2000, and was 69% higher than the five-year quarterly average of 171 tonnes, demonstrating the banks’ accelerating appetite for gold despite the metal’s strong rally during the period.† However, it’s a little too early to assess how price sensitive these purchases may be and whether further gains in the gold price could dampen demand from this sector. Gold has had a very impressive rally so far this year. We wouldn’t be surprised to see gold pulling back a bit and entering a period of consolidation at a lower level from present, though still well above $2,000, before embarking on the next leg of its rally.
Miners gain back ground
Talking about peaks…the gold miners have certainly covered some ground over the last couple of months, but they are still nowhere near their all-time highs. After a very strong March, the NYSE Arca Gold Miners Index (GDMNTR)6 and the MVIS Global Juniors Gold Miners Index (MVGDXJTR)7 continued to significantly outperform gold in the month of April, up 6.11% and 6.28%, respectively. GDMNTR closed at 1,164.30 on April 30, compared to its September 2011 high of 1971.01, when gold was trading at approximately $1,800 per ounce. This suggests there may still be plenty of runway for gold stocks as they reclaim their role as a leveraged play on the gold price. Our expectations of a sector re-rating are not only supported by continued strength in the gold price, but also anchored to generally solid company fundamentals. We are encouraged by financial and operating results reported by gold companies for Q1 2024, which seem to be mostly in-line with expectations for the group so far.
Relative Price Ratio – Gold Miners vs. Gold (Sep-2011 and Aug-2020 to Apr-2024)
Source: FactSet, Bloomberg, VanEck. Data as of April 2024.
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Important Disclosures
† Central Banks - World Gold Council.
All company, sector, and sub-industry weightings as of March 31, 2024, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1S&P 500 Index is widely regarded as the best single gauge of large-cap U.S. equities. The index is a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors including information technology, telecommunications services, utilities, energy, materials, industrials, real estate, financials, health care, consumer discretionary, and consumer staples. 2NASDAQ Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the Nasdaq stock exchange. 3U.S. Dollar Index measures the value of the U.S. dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. 4University of Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. 5Core Personal Consumption Expenditures Index is a price index that tracks how much consumers are spending on goods and services. It's frequently used to measure inflation. 6NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 7MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.
Related Funds
Important Disclosures
† Central Banks - World Gold Council.
All company, sector, and sub-industry weightings as of March 31, 2024, unless otherwise noted.
Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this communication.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
Diversification does not assure a profit or protect against loss.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
1S&P 500 Index is widely regarded as the best single gauge of large-cap U.S. equities. The index is a float-adjusted, market-cap-weighted index of 500 leading U.S. companies from across all market sectors including information technology, telecommunications services, utilities, energy, materials, industrials, real estate, financials, health care, consumer discretionary, and consumer staples. 2NASDAQ Composite Index is a market capitalization-weighted index of more than 2,500 stocks listed on the Nasdaq stock exchange. 3U.S. Dollar Index measures the value of the U.S. dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. 4University of Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. 5Core Personal Consumption Expenditures Index is a price index that tracks how much consumers are spending on goods and services. It's frequently used to measure inflation. 6NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 7MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a Fund. Certain indices may take into account withholding taxes. An index’s performance is not illustrative of a Fund’s performance. Indices are not securities in which investments can be made.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
NYSE Arca Gold Miners Index is a service mark of ICE Data Indices, LLC or its affiliates (“ICE Data”) and has been licensed for use by Van Eck Associates Corporation (“VanEck”). VanEck products are not sponsored, endorsed, sold or promoted by ICE Data. ICE Data makes no representations or warranties regarding VanEck products or the ability of the NYSE Arca Gold Miners Index to track general stock market performance.
ICE DATA MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE NYSE ARCA GOLD MINERS INDEX OR ANY DATA INCLUDED THEREIN. IN NO EVENT SHALL ICE DATA HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MVIS Global Junior Gold Miners Index (the “Index”) is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Associates Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. VanEck products are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in VanEck products.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.
© Van Eck Associates Corporation.