Gold reaches new historic highs with a record price of $2,802 per ounce, an increase of 35% in 2024. But this increase is intriguing: confidence in the global monetary system seems to be wavering.
Gold futures recently hit a new high of $2,802 an ounce. Since the start of 2024, gold has increased by 35%, its best performance since 1979. As a reminder, gold recorded its biggest annual gains in the 1970s: 73% in 1973, 66% in 1974 and 126.5% in 1979.
The rise in gold we are currently seeing is not the result of retail buying. The activity of retailers and parts resellers is very calm. Money is flowing out of specialized ETFs like GLD and those that track gold mining indices. This is not late bull market behavior.
The dollar is growing against other currencies. Long-term interest rates are rising. Stock markets are rising. The American economy is growing. Inflation falls. This is not a normal context for rising gold prices. So, why this rise in gold? Whatever the answer, someone is buying tons of them. This may be linked to the creation of the new BRIC currency.
In large bull markets, which break a new high every week, waiting for corrections to enter is rarely a profitable and successful strategy. Follow the rise, don’t miss it.
We still favor gold
At the end of October, Intel was removed from the Dow Jones index and replaced by Nvidia.
The Dow Jones Industrial Index includes the thirty largest stocks in the world. In 129 years, the Dow Jones has only changed its composition 58 times. By definition, any stock that enters the Dow Jones has already experienced enormous success. The price of Nvidia, for example, has increased by 361,800% since its IPO in January 1999.
Because of its long history and because it represents the elite of listed companies, we use the Dow Jones index relative to gold to determine whether the main trend in the stock markets is upward or downward. We also use the Dow for our indicator of market timing (in order to know when to invest in stocks or take refuge in gold): when the Dow relative to gold is above 15, it is preferable to switch to gold; when the Dow relative to gold drops below 5, you have to enter the stock markets.
Here is the historical appearance of this Dow ratio relative to gold.
Evolution of the Dow Jones industrial index compared to gold
Currently, it takes about 16 ounces of gold to buy Dow Jones stocks at current prices. It’s expensive to pay, and we will wait to be able to buy at 5 ounces of gold. This will happen if stock prices decline sharply, or gold rises sharply, or a combination of both.
Even though it has risen a lot, gold is not in a bubble, unlike stocks, in our opinion. We will therefore wait for the Dow Jones to fall and for the Dow/gold ratio to return to around 5, before modifying our asset allocation substantially.
Target at $10,000 per ounce of gold!
Don’t be tempted to sell your precious metals at current prices.
On the contrary, if prices fall, we would be tempted to buy more.
Analyst Tom Dyson says:
“In the past, I have sabotaged myself when my investments hit new highs by imagining an imminent reversal and cutting my positions too early. This lesson cost me millions of dollars. This time, with this rise in precious metals, I will not make the same mistake. And I hope to avoid it for you too. So I keep my gold, whatever happens. »
Here’s a reminder from Jesse Livermore, one of the greatest market traders of all time, about the importance of holding your positions well during a major bull market:
“After spending many years on Wall Street and having made and lost millions of dollars, I would like to tell you this: I have never made money by thinking, I have always made money by remaining seated in my positions. Got it? I remain firmly seated.
Rare are those who can both be right and sit resolutely. I learned that this was the hardest part. But only after grasping this can a market participant really make a lot of money. »
-Van Simmons runs the nation’s largest collectible gold retailer, David Hall Rare Coins, located in Newport Beach, California. Van has been collecting coins (and many other things) since he was 12 years old. He has been in the parts trading business for 45 years. He is one of the founders of PCGS, a service that grades the condition of rare coins and then seals them in tamper-proof packaging that makes them easier to trade.
October 2024 was the quietest month in his company’s history. In the past, he received 10 to 20 calls a day from people wanting to buy gold. Recently, this has not been the case. If someone had told him that gold would one day reach record prices but then his company would experience the lowest demand in its history, he would never have believed it.
Van’s comments confirm that most individuals have not yet started buying gold. The low valuation of gold mining companies would once again confirm this point.
Gold is a warning bell
At the moment, no one is openly panicking about rising gold prices.
At what cost will the rise of gold attract public attention? When will we see queues forming in front of the gold buyer’s shopkeepers?
Gold is only at $2,741 per ounce. The following graph (in logarithmic scale) shows the evolution of the price of gold in dollars since the adoption of the floating exchange rate regime in 1971, adjusted for inflation. With this representation, the price is not yet stratospheric. But a new rise begins.
We’ve had another epic year. The S&P 500 index rose almost 23%, gold 32%. These two assets experienced their best annual growth in 25 years.
“How many times have gold and the S&P 500 gained 25% in one year simultaneously? »writes our old friend Meb Faber on Twitter. ” Zero “he replies.
Many people are concerned about inflation and currency depreciation, and are sensitive to the importance of holding real assets. We are also worried.
But we must be attentive to the problem of spiraling public debt.
The next time there is a major economic downturn or credit crisis – like in 2008 or 2020 – the rescue will be more difficult. All solutions have been exhausted.
So the biggest risk is not inflation – but some form of liquidation, deleveraging, banking crisis or credit crunch that the government will struggle to alleviate due to concerns about its own solvency.
Someone could contradict us by saying this: “The ECB, Federal Reserve, and other central banks could simply open a new window and allow anyone in trouble to remove their bad assets from their balance sheets without selling them in exchange for impeccable reserves, thereby restoring confidence. »
Our counter-argument is that, with gold already returning to record highs, and deficits in France and the United States having reached record levels, the markets will no longer be as accommodating.
For this reason, we have activated our “maximum security” mode.
[NDLR : Retrouvez plus d’analyses sans concession – et des recommandations concrètes qui vous aideront à protéger votre épargne et votre niveau de vie : cliquez ici pour en savoir plus.]
