Inside the gold rush of this century
Eric Vazquez, a lineman for a power company in southwest Florida, believes he has a significant amount of gold in his possession, which may exceed the recommendations of most financial advisers. Not only in his portfolio, but also in bars and coins scattered across various undisclosed locations.
It is a strategic approach for a world that he is concerned is becoming increasingly chaotic. The government continues to exceed its spending limits. Stock prices have the potential to plummet due to a single tweet. According to Vazquez, guaranteeing his family’s peace of mind at night involves having physical assets, rather than just a stake in them through an exchange-traded fund.
“In my adult life, there has been no improvement,” stated Vazquez, who is 33 years old. “I have a strong desire to have more control over my livelihood, safety, and the safety of my family.”
Concerns over conflict, division, and increasing national debt have prompted people and organizations around the globe to flock towards what financial experts refer to as “physical gold” – including bars, coins, jewelry, and nuggets. Due to extensive stockpiling, prices have surged by over 40% since October 2022, reaching $2,367 per troy ounce.
The rise has occasionally puzzled analysts, as it did not align with a common characteristic of previous rallies: an increase in optimistic investments in futures, options, and ETF markets. Furthermore, gold does not generate any income and tends to lose its appeal among investors when interest rates increase and the returns from other secure investments, such as bonds, become more lucrative. However, the metal experienced its most significant increase between February and April, coinciding with the Federal Reserve’s indication that interest rates may remain elevated for a longer period than anticipated by the financial industry.
Now, it is widely believed that prices were influenced by a significant number of Chinese consumers. Concerned about their nation’s unstable economy and looking for tangible assets beyond the struggling real estate market, individuals have been stockpiling physical gold. In March, the country recorded a significant increase in gold imports, with 194 metric tons being brought in. This marks a 40% rise compared to February and represents the highest monthly inflow in at least seven years, according to customs data.
However, individuals from all corners of the globe are eagerly acquiring this valuable resource. There is a noticeable trend of individuals in Asia and the Middle East paying higher prices to acquire gold. In a note to clients last month, Nicky Shiels, metals strategist at MKS PAMP, shared his insights. Costco’s bullion business is experiencing significant growth in the United States. The demand for bars and coins, which is primarily driven by individual buyers, experienced a significant growth of 36% from 2019 to 2023, as reported by the World Gold Council trade organization.
According to analysts, individuals who casually add bars and coins to their shopping carts typically don’t exhibit the same level of concern about monetary policy as Wall Street professionals. Many individuals desire a portable or easily concealable item to protect themselves from potential disasters.
Investors’ growing interest in gold has further fueled the demand from central banks, who accumulate significant amounts of gold bars as part of their monetary reserves. Following Russia’s invasion of Ukraine in 2022, the banks significantly increased the rate at which they purchased gold, as reported by the WGC. Their objective was to enhance the diversification of their portfolios. According to analysts, certain countries, including China, have been unsettled by the sanctions placed on Russian central bank reserves. As a result, they are now withdrawing from assets denominated in dollars, such as Treasurys.
According to David Wilson, senior commodity strategist at BNP Paribas, the recent increase in central bank and consumer buying has disrupted the usual pattern of gold prices declining when inflation-adjusted interest rates go up. According to his modeling, the accumulation of metal is causing prices to be approximately $1,000 higher than they would be otherwise.
“There is a noticeable increase in uncertainty, whether it’s related to the economy or geopolitical factors,” stated Wilson.
According to Alex Ebkarian, the chief operating officer of precious metals dealer Allegiance Gold, there has been a surge in new buyers following the Covid market crash and last year’s regional banking crisis. In recent times, the emergence of new trade agreements between nations like Russia and China has sparked concerns about the declining influence of the U.S. dollar on the global stage. This has led some investors to look for stability in the currency that was favored by the pharaohs.
“They’re pondering the hypothetical scenario,” stated Ebkarian. “What if the value of the dollar keeps decreasing?” I prefer not to rely solely on paper-based assets.
Investors are increasingly drawn to the precious metal as global debt continues to rise, according to Aakash Doshi, Citigroup’s head of commodities research in North America. The Institute of International Finance reported that global debt increased by 24% to $313 trillion from the start of 2020 to the conclusion of last year.
There has been an increase in bullish futures and options bets made by hedge funds and other speculators. According to Doshi’s analysis, the financial market is expected to align with the physical market, resulting in a significant increase in the price of gold to $3,000 within the next six to 18 months.
“Perhaps the market is finally recognizing that gold prices were undervalued,” he remarked.
One of the factors that motivates Barry Kitt to purchase gold is the significant increase in debt. According to the calculations of the Dallas-based individual, it has outperformed inflation since 1913 and the S&P 500 since 2000.
With a background in hedge-fund management and now overseeing a family office, Kitt is well-versed in financial products and opts for ETFs when he needs to execute trades swiftly. However, the majority of his gold consists of physical assets, such as numerous sizable crystalline nuggets.
According to his analysis, when it comes to ETFs, the ownership lies in a piece of paper rather than actual gold. I desire ownership. I would like to ascertain ownership.”
