Published on Nov. 21, 2023 at 7:15 a.m.
How high will gold prices rise? Tensions in the Middle East have recently propelled the precious metal beyond $2,000 an ounce before consolidating around $1,980. On October 27, the price of gold peaked at $2,009.40, close to its all-time high in August 2020.
A safe haven par excellence, the yellow metal allows you to hedge against stock market turbulence. It is appreciated in times of crisis. Its evolution also depends on multiple other factors (change in rates, inflation, etc.) but its trajectory no longer seems as predictable as in the past.
What is the link between gold and rates?
Traditionally, gold benefits from an environment of low or even negative real interest rates (nominal rates excluding inflation), and it loses its luster during periods of rising rates. As it does not provide income, it is less attractive. However, this correlation between gold prices and real rates is no longer as clear as before.
For example just after March 2022, and the invasion of Ukraine, despite the increase in real yields, the price of gold also increased, thus breaking the usual negative relationship, recalls John Plard analyst at Mirabaud Securities, in a note published on 1er november.
If this link between gold and real yields is partly “broken” it is in particular because emerging central banks (China, Russia) are confusing the waters by continuing to mively increase their metal reserves to free themselves from the hegemony of the dollar. “Gold is no one’s debt: there is no counterparty risk unlike the sharply increasing debt of States,” observes Marion Balestier, fund manager at OFI et Management.
The certainties of the past according to which, when real yields fall, gold rises are no longer so true today. The inverse relationship between the dollar and gold is also less clear. In principle, when the dollar rises, gold falls because investors focus on the American currency, a competing safe haven.
And for the European investor who buys in euros, the situation becomes even more complicated. As gold is quoted in dollars, it is exposed to exchange rate risk. If gold rises and the dollar falls, it can lose on the exchange what it will gain with the rise in the price of the raw material. If gold and the dollar rise together, which is rarer, it will, however, be a winner on both counts.
Different factors, such as inflation expectations, risk appetite, liquidity conditions and economic growth can play spoilsport.
“Geopolitics no longer has as strong an impact as in the past. In 2022, all ets, whether bonds or stocks, fell quite violently because of central bankers’ misreading of the inflationary cycle. Gold even fell slightly last year (Editor’s note: in dollars),” recalls John Plard.
Is now the time to buy?
“Over the last 18 months, the context was rather unfavorable for raw materials due to the fairly drastic monetary tightening cycle. To combat inflation, the American Federal Reserve led the charge and increased its rates much more sharply than central banks in the eurozone and elsewhere, resulting in a sharp rise in the dollar. The sharp rise in rates and the dollar has pushed investors to abandon gold,” underlines Marion Balestier.
“In recent weeks, the context has become more buoyant again. The latest macroeconomic statistics show a slowdown in inflation and growth in the United States. Everything therefore suggests that we are seeing the end of the cycle of rising rates,” adds the manager.
For his part, John Plard considers that the upward movement in gold could continue until the end of December, but with a more measured magnitude than in recent months. It is aiming for a target of $2,100 per ounce in 2023. “Most of the progress has been made. We can estimate that gold will not fall again even if the war in the Middle East results in a cease-fire,” adds the economist. According to him, for 2024, a peak of 2,300 dollars could be reached.
The rebound in gold prices has led experts into an escalation of very optimistic forecasts. According to Mike McGlone, Bloomberg’s senior commodities strategist, the precious metal could reach $3,000 in 2024, Mirabaud recalls. For his part, Adam Rozencwajg of the Wall Street investment firm Goehring and Rozencwajg (G & R) said: “It’s only a matter of time before gold exceeds double digits to reach 12,000 or even 15,000 dollars the ounce”. A shocking forecast that may seem excessive.
Gold prices have woken up and the potential for a rebound does not seem to have been completely exhausted. “We often forget it, but gold began to be used between 4,500 and 4,200 BCE. It is therefore an et with which we have always lived, and which has appreciated over time. Today with economic, monetary and geopolitical uncertainties, it continues to arouse interest among investors and central bankers,” summarizes John Plard. “In a diversified portfolio, you should have some. There is no doubt about it,” says the economist.
In the long term, few investments have offered as many guarantees as the yellow metal. “We saw a lot of young investors flocking in when bitcoin fell, particularly at the time of the FTX scandal,” relates Laurent Schwartz, president of Comptoir de l’or. “Crypto investors have a strong appetite for risk. Our customers are more cautious.”
This may be a good time to strengthen this protective et with a view to diversification. But be careful, it should not represent more than 5% of ets due to its total lack of return.
Gold coins, bars, or ETFs
An individual has several possibilities to diversify his ets with a little gold. The saver can move towards physical gold. Napoleon, ingots… there is something for all budgets. It is simple to buy gold, as many banking networks allow it.
Please note, regarding the coins, there is a difference between their price and the price of the weight of the gold they contain. This is called the premium. It can be positive or negative and varies depending on supply and demand.
Pure gold jewelry indexed to the price of the metal
Created in 2017, the site Mené.com from the Aramaic word meaning “currency of exchange” markets jewelry sold by weight in platinum or 24-carat gold, an “extremely pure” gold with which jewelry is rarely worked.
To the price of the metal, the company co-founded by Roy Sebag and the art historian Diana Widmaier-Pico – granddaughter of the illustrious painter, adds a margin of 20 to 30% for creation and manufacturing. Mené also guarantees its customers the repurchase of their productions at the gold price. They can also be exchanged, upon payment of a commission.
Main disadvantage, you will then have to store your gold. Some prefer to keep it at home but it is risky. If you put it in a safe at the bank, you will then have to pay custody fees that are often high in banking networks. Finally, don’t forget to take into account taxation (read box below) which will affect the profitability of the investment.
Another solution for gaining exposure to gold: investors can turn to ETFs, these funds which replicate the price of the metal. Another solution: buy shares of mining companies at the risk of greater volatility. If the stock markets are gloomy, the shares of mining companies can decline even as gold rises.Finally, the saver can opt for funds that invest in gold and precious metals, which are more diversified but also exposed to stock market risks. Some funds are eligible for life insurance.
Purchase and sale of physical gold: what taxation?
Physical gold is subject to a flat tax of 11.5% on the sale amount (and not on the gain alone). The investor can also opt for tax on capital gains on movable property at the rate of 36.2% (including 17.2% social security contributions) on the gain made. A reduction of 5% per year applies from the 3rd year of ownership, i.e. an exemption after 22 years. In the event of a capital loss, no tax is due. To benefit from it, you must still be able to prove the date and price of purchase of your gold.
> Real estate, life insurance, taxes, pensions… To find all the latest heritage news, subscribe to our newsletter > Register