9 October 2024
As the days get shorter, the temperatures turn cooler and pumpkin spice everything is everywhere, gold and silver emerged as clear asset class winners in the third quarter. Amid escalating war in the Middle East, the start of the Federal Reserve rate cutting cycle and uncertainty about the U.S. presidential election investors are piling into the safety of gold and silver.
Precious Metals Performance
In September, gold broke records again hitting a new all-time at $2,670 an ounce, while silver soared to a 12-year high at $32.00 an ounce. Gold is up 24% since the start of the year and silver has gained 28%.
Mideast War Heats Up
The match has been lit in the Mideast and the fire could blaze out of control at any time. At the end of the third quarter, it became clear the Mideast conflict is expanding as the war has widened to not only include Israel and Hamas but also Iran and Lebanon. War can create scenarios that spark big sell-offs in stocks, which is another factor supporting fresh inflows into gold as a safe-haven.
Fed Starts Historic Rate Cutting Cycle
The start of the Federal Reserve’s rate cutting cycle in September sparked a dramatic rally in gold—pushing the precious metal to another record high. The Fed went big with its first interest rate cut of this cycle with a jumbo sized half percent cut, bringing the Fed’s benchmark rate to 4.75% to 5.00%. This marked the first interest rate cut in four years.
In the Fed’s policy statement, it explained the move reveals “greater confidence that inflation is moving sustainably toward 2%” and that the central bank “judges that the risks to achieving its employment and inflation goals are roughly in balance.”
The Fed is expected to continue cutting interest rates through the rest of the year – including at the November meeting in the same week as the presidential election.
What does this mean for metals investors? Gold trends higher for nearly two years once the Fed begins cutting interest rates. Research from the Wells Fargo Investment Institute reveals that the start of Fed rate cutting cycles are extremely positive for gold ahead: “The average price of gold has tended to rise quite nicely and for nearly 21 months, following the start of past Fed interest-rate easing cycles.”
Jobs Market Running Out of Gas
The latest government data reveals that job growth is slowing. Over the past three months, the number of new non-farm jobs fell from an average of 250,000 per month in 2023 to just 116,000 new jobs per month.
The high level of interest rates has been one factor weighing on job growth and is slowing the overall economy. Employers have pulled back on hiring as high interest rates has slowed consumer buying of big-ticket items from homes to cars to furniture. The slower consumer demand hurts profit margins, so employers pull back on new job creation. This adds fuel to speculation that the Fed may need to continue to go big with future interest rate cuts and may need to slash rates by another half percent at its November 6-7 meeting.
Consumer Confidence Plummets
Worries about jobs drove the September Consumer Confidence Index sharply lower to 98.7 from 105.6 in August, the Conference Board said. The September plunge in consumer confidence marked the biggest drop since August 2021 and showed deterioration in all five components of the index. Americans worry about the upcoming U.S. Presidential election, the increasing military conflict around the globe, and the still high cost of everyday items like food and interest on loans for homes, cars and credit cards.
Polarized Nation Set to Vote for President in November
Another factor injecting uncertainty into the financial environment is the November presidential election. Polls reveal a near dead heat between Donald Trump and Kamala Harris. And investors and Wall Street are bracing for what could be two extremely different policy directions on issues like taxes and trade and what those policies could mean for the economy ahead.
This all adds up to a stock market vulnerable to big swings up and down. That’s another reason that investors have been piling into gold this year. Gold provides protection and wealth preservation against a number of unforeseen events that could cause other asset classes to tumble. Consider this.
During the 2001 dot.com stock market crash, the S&P 500 was down 47% and gold was up 16%.
During the 2008 global financial crisis, the S&P 500 was down 55% and gold was up 21%.
The U.S. Government Debt and Gold
Gold has a proven track record over thousands of years as an asset that can preserve wealth. Today, affluent families and everyday Americans are turning to precious metals in greater numbers many reasons including protection against the historic and ever-rising levels of U.S. government debt.
Consider this: In 2024, the U.S. government debt has soared above $35 trillion, that’s up from $27.1 trillion in 2019.
Most concerning to many policy watchers is that the rising debt levels are occurring during peace time when the U.S. economy is growing. Historically, the debt rises during economic recessions, not periods of peacetime and economic growth. This leaves the U.S. vulnerable to an even bigger increase in the debt during the next recession.
Unlike the U.S. dollar, gold is a currency that is beholden to no national government and has no obligations or debts against its value. There is no counter-party risk when you own gold and a government can’t simply devalue gold or print more of it.
The Bottom Line
Gold is a clear winner in this environment. The start of the Fed easing cycle is positive for the precious metals complex and will help gold continue to power higher in the months ahead. New forecasts from Citi Research reveal analysts there say gold could reach $3,000 an ounce by mid-2025.
These forecasts reveal lots of performance gains ahead, meaning it is still an optimal time to increase your allocation to gold. Investors who own gold have done better than portfolios without gold over the past twenty years. Is your portfolio properly allocated to deliver maximum returns and maximum safety? If you aren’t sure, give us a call we are happy to help.
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