I asked how high gold can rise in an early September Barchart article. I concluded the piece with the following:
Gold’s upside potential is a function of market sentiment and could reflect the decline of fiat currency values. The sky could be the limit for gold as commodity prices often rise to unreasonable, irrational, and illogical levels during bull markets that deft technical and fundamental supply and demand analysis. Gold is not a typical commodity as it is a hybrid between a means of exchange or currency and a raw material. Therefore, its position as a unique asset has tempered its volatility, but the price continues to rise to new and higher highs. The bottom line is we should respect gold’s trend, which remains bullish in early September 2024.
Nearby December COMEX gold futures were trading at $2,533.40 on September 3 after reaching a new record high of nearly $2,600 per ounce. Since then, gold has made higher highs, eclipsing the $2,700 level. Given inflation’s impact, the upside target could be much higher.
New highs in gold
Gold reached a new record peak in September 2024.
The chart dating back to the mid-1970s shows gold’s latest record high of $2,708.70 per ounce in September 2024. Gold has made higher lows and higher highs throughout this century, and the bull market remains firmly intact in October, with the price near the $2,700 level.
The nominal 1980 high adjusted for inflation takes gold to even higher highs
The long-term chart shows that gold’s 1980 $875 per ounce high remained the peak for twenty-eight years until 2008 when the precious metal rose to a new nominal high. Meanwhile, the value of the 1980 $875 peak in 2024 dollars, adjusted for inflation, is much higher.
The chart and calculator show that $875 in 1980 is over $3,340 per ounce in 2024. With gold in nominally uncharted territory, the inflation calculator for the inflation-sensitive gold price could set the upside target in the current environment.
Geopolitics and economics create a bullish landscape
Markets reflect the economic and geopolitical landscapes. In 2024, wars raging in Ukraine and the Middle East, the bifurcation of the world’s nuclear powers, inflation above the Fed’s 2% target, a robust employment environment, and a highly contentious and close November 5 U.S. election create more than a bit of uncertainty in markets. Gold tends to thrive when geopolitics and economic factors create uncertainty.
Buying on dips has been optimal
While gold has experienced an over tenfold increase from the 1999 $252.50 per ounce low, the twenty-five-year bull market has not moved in a straight line.
The twenty-year chart shows a series of significant downside corrections:
- Gold dropped 34.1% from the March 2008 $1,033.90 high to the October 2008 $681 low.
- Gold dropped 45.7% from the September 2011 $1,923.70 high to the December 2015 $1,045.40 low.
- Gold declined 19.9% from the August 2020 $2,089.20 high to the March 2021 $1,673.70 low.
- Gold dropped 22.2% from the March 2022 $2,078.80 high to the November 2022 $1,618.30 low.
Since the November 2022 bottom, gold prices have made higher lows and higher highs with few downside corrections. Meanwhile, the higher gold prices rise, the greater the odds of a correction. Gold has experienced several double-digit downside corrections over the past sixteen years. Buying gold on these corrections has been optimal since the 1999 low.
GLD is the most liquid gold ETF, but IAU and BAR also do the trick
Since the turn of this century, buying gold on rallies has been profitable, but it has caused more than a little indigestion at times. If gold is heading for a challenge of the inflation-adjusted 1980 high at over $3,300 per ounce, it will not likely move to that level in a straight line. Buying gold on price weakness will likely continue to be the optimal investment approach.
The most direct route for gold investment is the physical metal available in bar and coin form from physical dealers or financial institutions. Three liquid ETF products that hold physical gold bullion are:
- The Gold SPDR (GLD)- GLD is the most liquid gold ETF product. At $246.80 per share, GLD had over $74.962 billion in assets under management. GLD trades an average of over 6.17 million shares daily and charges a 0.40% management fee.
- The iShares Gold Trust (IAU)- IAU is a liquid gold ETF product. At $50.46 per share, IAU had over $32 billion in assets under management. IAU trades an average of over five million shares daily and charges a 0.25% management fee.
- The GraniteShares Gold Trust Shares (BAR)- At $26.38 per share, BAR had over $877.57 million in assets under management. BAR trades an average of over 746,000 shares daily and charges a 0.17% management fee.
GLD, IAU, and BAR do an excellent job tracking gold prices. While I believe that gold will challenge the $3,300 inflation-adjusted high and move to even higher highs over the coming months and years, the route higher could come with lots of corrections that provide an opportunity to hop on the golden trend that has been intact for two and one-half decades.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
