Gold is on fire towards the long forecasted USD3,000 an ounce amid rising yields and a strong US dollar. A number of our positions have seen solid gains. On a one-year basis, gold has gained more than 30% making it one of the best performing asset classes.
With bullish articles on gold popping up everywhere, it almost feels like we have struck an internet gold rush. People are flocking to goldsmiths and jewelry shops like it is Black Friday at a bullion store. That said, our models do not hold more than 10% in the yellow metal in any portfolios. Unfortunately, I did not have the foresight to stash any gold bars under my mattress, guess I will have to stick to my regular pillows for now.
Several factors could be fueling this heightened demand for physical gold including geopolitical tensions in the Middle East, concerns over potential US tariffs and increased buying from institutional investors and central banks. Central banks in countries such as China and India have increased the level of gold in their reserves. The chart below shows the annual central bank net purchases.
I’m not suggesting the party is over. Please do not get carried away. It is time to cool off a little. As with all investments, one must consider both sides of the story in my humble opinion. Chasing momentum at this stage might not be the golden ticket some are hoping for.