Should we invest in gold?
Today the yellow metal is benefiting from several support factors. For their part, gold mines also offer significant upside potential.
Published on 12 December 2024
It weighs 31.10 grams but has never been worth so much. Since the beginning of the year, the ounce of gold has broken record after record, reaching an all-time high of $2,790 in October. For Arnaud du Plessis, thematic equity manager at CPR Asset Management, "the very active role played by the central banks of emerging countries in the gold market, particularly the Bank of China (BoC), is the main factor behind this rise. In 2022 and 2023, they gathered more than 1,000 tonnes per year".
With the predominance of the US dollar and the ever-increasing indebtedness of Western countries, some emerging countries want to "de-dollarise" the global economy and diversify their foreign exchange reserves. "Over the last three years, the BoC has sold a third of its holdings of US Treasury bills and reinvested a large part of them in gold," points out Arnaud du Plessis. "And according to the World Gold Council, the majority of emerging central banks will continue to build up their gold reserves."
A favorable economic environment for gold
The "Barbaric relic", as it was nicknamed by the economist John Maynard Keynes, is also benefiting from the decline in US Federal Reserve key interest rates. "Unlike equities or bonds, gold does not provide a return," points out the specialist. "When US key and real interest rates fall, the gold price generally benefits from favorable arbitrage, and vice versa". And as the yellow metal is denominated in dollars, the depreciation of the greenback, following the fall in rates, makes it more attractive to investors holding other currencies.
Finally, in an environment marked by economic and trade tensions between the United States and China, as well as the wars in Ukraine and the Middle East, gold keeps its status of safe haven for investors. In addition, there is strong demand for physical gold. All these factors should support the price of an ounce of gold, which could reach $2,700 and $3,000 respectively by 2025, according to UBS and Bank of America.
Gold mines remain attractive
Gold mining companies are benefiting from this context. Despite higher operating costs, they have released good results since the beginning of the year, with record margins. Analysts are not mistaken, as 12-month earnings forecasts have been revised upwards by more than 75% since the start of the year. However, "mining stocks are still 35% off their 2011 highs, when an ounce of gold was worth $1,900", observes Arnaud du Plessis. "Their valuations are therefore extremely attractive". Historically, their performance relative to gold is 2 to 3. In other words, if gold remains at its current level, "gold mines could easily recover the 2011 level, and even exceed it ", says Arnaud du Plessis.
Gold in your portfolio
Because it has little correlation with other assets, "holding gold on a structural basis aims to diversify the portfolio and smooth out volatility," says Arnaud du Plessis, who points out that, like any investment, it carries risks, particularly the risk of capital loss. Gold can be held under physical forms (ingots, coins), which requires appropriate storage conditions, or directly through gold mining companies, which requires expertise, or through a thematic fund to diversify its allocation and pool risk.
Warning:
Past performance is not a guarantee or indication of future results. Investment involves risk. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. It is the responsibility of investors to read the legal documents in force in particular the current prospectus of the Fund.
All comments and analyses reflect CPRAM’s view of market conditions and its evolution, according to information known at the time. The information in this document has no contractual value and does not bind CPRAM. It is based on sources that we consider to be reliable, but we cannot guarantee that they are accurate, complete, valid or apt, and they should not be considered as such for whatever purpose. All registered trademarks and logos used above for information purposes are the property of their respective owners. All or part of this publication may not be copied or distributed to third parties without CPRAM’s prior consent. Subject to the fulfilment of its obligations, CPRAM cannot be held responsible for the financial consequences or any outcome whatsoever resulting from an investment. All the legal documentation for the fund is available on the internet site www.cpram.com or upon simple request to CPRAM.
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