Gold has soared to successive all-time highs this year.
At the time of writing, gold is trading at US$3,433, after surging more than 30% for the year to date. Gold has significantly outperformed the S&P/ASX200 Index (ASX: XJO), which is down more than 5% for the year to date.
Historically, gold has been seen as a safe haven during uncertain times and a hedge against inflation. Given the recent geopolitical conflict and persistently high inflation, it's no surprise that gold has outperformed other asset classes.
However, several additional factors have also fuelled its dramatic rise. Let's dive in.
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Trump considers removing Federal Reserve Chairman
Over the past few days, US President Donald Trump has ramped up his attacks against Federal Reserve Chairman Jerome Powell. Trump has suggested that the Fed should have already lowered interest rates.
Last week, Powell suggested that "Tariffs are highly likely to generate at least a temporary rise in inflation…the inflation effects could also be more persistent." Powell warned that this may create a "challenging scenario" for the Federal Reserve, suggesting the Fed may not cut rates anytime soon. While US inflation has moderated substantially from its June 22 peak of 9%, it still sits at 2.4%, which is above the Fed's 2% target.
Yesterday, Trump launched his latest attack against Powell, once again calling for aggressive rate cuts. He is also reportedly considering removing him as Federal Reserve Chair. Trump wrote on social media that "Powell's termination cannot come fast enough!." These attacks have not been well received by the market, with the US dollar falling to a three-year low.
Fears of political interference have shaken confidence in the US dollar. The Federal Reserve has long been considered a nonpartisan, independent agency. Powell, who was appointed by Trump in 2017, still has another year left on his term.
These series of events have pushed gold to another record high as investors avoid risky assets in favour of safety.
The gold trade becomes more crowded
As the appeal of gold rises, many retail and institutional investors have been getting on the bandwagon.
Last week, it was reported that gold had overtaken Magnificent 7 to become the most crowded trade on Wall Street. According to the latest Bank of America fund managers survey, 49% of fund managers expect gold to outperform this year. This survey also marked the first time in two years that fund managers did not view the Magnificent 7 as Wall Street's most crowded trade.
Reuters also recently reported that investment flows into Chinese physically backed ETFs so far in April have exceeded those for the entire first quarter and have also surpassed inflows into US-listed funds.
According to Bloomberg, Central banks have been adding gold to their reserves, fuelling strong worldwide demand.
Further to run?
Despite its record rise, many forecasters believe gold has more to run. Goldman Sachs predicts that the yellow metal will surpass US$4,000 in mid-next year.
ASX investors who share this sentiment can invest in several gold-focused exchange-traded funds (ETFs). Global X Physical Gold ETF (ASX: GOLD) is the largest and most liquid gold-backed ETF in Australia. Over the past year, it has climbed more than 40%. Its long-term track record is also admirable, having increased at a compound annual growth rate (CAGR) of 12.5% over the past 10 years. With a management expense of 0.4%, GOLD ETF is an excellent option for ASX investors with a positive view on the future of gold.
