Stocks Hit Fresh Highs at the Same Time as Gold's Record-breaking Run. Is It Too Late for Investors?

Gold has been on an upward trajectory this year, continuously hitting record price levels, even as U.S. stocks achieve new highs. Typically, gold—a safe-haven asset—does not rise in tandem with risk-on rallies in stocks, but this trend is showing no signs of slowing down. The increased demand from central banks and declining real interest rates have fueled this surge in gold prices.

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Investors are now looking for the best ways to tap into the gold market. According to Trevor Yates, an investment analyst at Global X, it’s not too late to invest in gold. December gold futures on Saturday rose by $22.50, or 0.8%, to settle at $2,730 per ounce on Comex, reaching a record high of $2,735.50. These figures, as tracked by Dow Jones Market Data, mark the highest settlement and intraday levels on record.

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Yates pointed out that the gold rally is driven by two main factors: strong demand in the physical and financial markets. On the physical side, central banks set a record for gold purchases in 2022, followed by the second-highest amount in 2023, with demand continuing into 2024. In the financial markets, the expectation of lower real interest rates has also contributed to the surge in prices, with central banks, including the Federal Reserve, beginning their rate-cutting cycles.

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Interestingly, stocks and gold don’t usually reach record highs simultaneously unless central banks are cutting rates. Currently, the Dow Jones Industrial Average and S&P 500 are both hitting fresh record highs in October. The market is factoring in the likelihood of lower real rates, and gold is being priced accordingly. Historically, gold has performed well in stagflationary environments, where growth is stagnant, but inflation remains high, further supporting gold’s recent momentum.

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As of today, gold futures hit record intraday highs 34 times this year, and the precious metal has risen nearly 32% year to date. According to George Milling-Stanley, chief gold strategist at State Street Global Advisors, gold’s rise seems to have "significant momentum," with no indication that the factors driving prices are weakening. If anything, these drivers are intensifying.

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In comparison, the S&P 500 has risen 23% this year, while gold continues to be supported by strong buying from central banks, particularly in emerging markets, and robust investment demand in China. Meanwhile, Western investors are showing renewed interest in gold, spurred by the U.S. Federal Reserve’s move to cut interest rates.

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Brien Lundin, editor of Gold Newsletter, noted that Western investors were initially slow to join the gold rally, as they found it difficult to interpret the central bank and Chinese demand. However, the Federal Reserve’s policy shift to rate cuts is something Western investors can now get behind, and they are starting to make larger bets on gold.

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Given the market conditions, many analysts believe that it’s still a good time to invest in gold, with various options available to investors. These include physical gold, exchange-traded funds (ETFs), mining stocks, and futures contracts.

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Physical gold
Bars and coins are a popular choice for owning physical gold. Peter Spina, founder of GoldSeek.com, emphasized that holding physical bullion is the best form of ownership, stating, “If you hold it, then you own it.” Naeem Aslam, chief investment officer at Zaye Capital Market, agreed, describing physical gold as a solid long-term investment for those looking to hedge against inflation and currency devaluation. Although the demand for physical gold has been strong during market turbulence, the costs of storing and insuring it can deter smaller investors.

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However, Adrian Ash, director of research at BullionVault, highlighted that the retail market for bars and coins has been quiet due to high interest rates and the strong stock market. Costco’s entry into the bullion market has generated public relations buzz, but Ash suggests that its impact on the overall U.S. retail investment market is likely minimal.

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Gold ETFs
Gold exchange-traded funds (ETFs) have become the go-to investment option for many. According to Aslam, gold ETFs are easy to buy and sell, and they come with lower costs compared to holding physical gold or dealing with the complexities of futures contracts. SPDR Gold Shares, one of the most prominent gold ETFs, has seen its value rise by 31% this year, with investors pouring money into these funds in 2024 as they expect gold prices to continue climbing.

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Mining stocks
For those looking to invest in the gold sector, mining stocks offer another viable option. The NYSE Arca Gold Bugs index, which tracks gold miners, has surged by nearly 42% this year. According to Spina, mining stocks are an attractive buy due to their leveraged exposure to rising metal prices, though they have lagged behind the physical gold market in recent years.

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Futures contracts
While futures contracts are popular with speculative traders, they are not a primary investment vehicle for most individuals and institutions. Milling-Stanley of State Street Global Advisors noted that futures are mainly used as a hedging mechanism for gold producers and manufacturers. He advised against focusing too narrowly on futures, as they represent only a small part of the overall gold investment market.

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Long-term outlook
In the bigger picture, Ash pointed out that profit-taking in gold remains moderate, with no signs of a rush for the exits. This suggests that investors remain confident in gold’s long-term potential, especially given the current geopolitical tensions, economic uncertainty, and the shift toward falling interest rates. These factors are likely to sustain investor interest in gold for the foreseeable future.

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