Bank of America advises investors to buy gold like central banks as the yellow metal continues its rally. Thus far in 2024, gold prices have risen over 26% from just over $2,000 to nearly piercing $2,600. Those numbers comfortably outshine the S&P 500 and even the tech sector — the usual wealth drivers of the economy. BofA’s recommendation underscores the influence central banks have on gold prices and their intention to keep buying.
Stocks Can’t Keep Up
The stock market is the usual wealth generator for investors which is why gold’s lead position is triggering “buy” recommendations from top banking institutions. Even when zooming in on the tech sector, which has received a major boost from the AI revolution, gold is still in the lead. More specifically, the S&P 500 has gained roughly 19% since the beginning of the year. The tech sector has put up similar numbers. Vanguard’s Information Technology Index – a broad representation of the tech market – is just shy of reaching 20% thus far in 2024.
Why are stocks and gold going up?
Both the stock market and gold have set several record highs this year, contradicting the usually inverse relationship between these assets. The reason? The economy is in a transition phase. The stock market’s boom still has fuel as investors pour years of easy money from the Federal Reserve into markets. At the same time, savvy investors are recognizing the economic slowdown as rate cuts and a weak dollar loom overhead. This is leading to a rise in safe-haven demand which is a boon for gold prices.
Central Banks Bet on Gold (Against the Dollar)
In this transition phase, many investors wonder where they should park their money for the best outcome moving forward. To this question, BofA is sending a clear answer: follow the lead of central banks. As the banking arms of official governments, these institutions are essentially the most well-connected, most knowledgeable, and wealthiest investors in the game. For the past few years, central banks have been shedding dollar reserves and binging on gold. In fact, central bank gold demand has hit records in 2022, 2023, and the first half of 2024. Irresponsible domestic money management and geopolitical factors are sparking a worldwide de-dollarization movement and gold is the replacement of choice.
Central Bank Gold Demand in Numbers
Central banks bought 1,136 tons of gold in 2022 and 1,037 tons in 2023.
Governments continued their spree in H1 of 2024 with 483 tons.
China has been leading the pack, buying gold for 18 consecutive months.
How Central Bank Demand Drives Gold Prices Higher
Central banks don’t just give retail investors insights into prudent investment decisions. Their buying behavior is one of the most influential factors affecting gold prices. BofA analysts are calling for higher gold prices precisely because central banks haven’t taken their foot off the gas. The World Gold Council is even anticipating more buying throughout 2024 and beyond. This consistent demand from the planet’s biggest investors could keep gold prices consistently elevated for years down the line. Some experts even anticipated the next decade . The expectation of sustained central bank gold demand gives permission for retail investors to enter the market, further solidifying the yellow metal’s momentum.
Why Gold?
Gold is one of the most widely traded safe-haven assets due to its tendency to keep pace with inflation. This gives investors a place to park their wealth for optimal protection during periods of economic downturn. That’s the strategy central banks are using as the world economy enters a period of volatility and transition. Physical gold’s tangible nature, inherent value, and widespread make it an effective wealth protector.
