Gold shines through uncertainty: Why it remains the ultimate safe-haven asset

WHILE IT HAD taken the concerted efforts of De Beers and advertising agency N.W. Ayer & Son to make people believe that ‘A Diamond is Forever’, gold never needed a champion. From the lores about the mystical city of El Dorado, the legend of King Midas, to the chronicles of magical alchemy for turning lead into gold, the yellow metal has been mankind’s most coveted means to wealth since time immemorial, the most steadfast and resilient of all financial assets.

In fact, in 2024, gold is poised to have its best annual performance in more than a decade — up 30% year-to-date in U.S. dollar terms and 22% YTD in rupee terms. The inflation-adjusted return of gold in 2024 has been more than the 1980s, says Sachin Jain, regional CEO, India, World Gold Council (WGC). In the same duration, the Nifty yielded just 13.39%, way lower than returns on the yellow metal.

In the last five years, this is the third year when the S&P 500 lagged gold returns. Coincidently, the Nifty50 returns were also less than that of gold during the same years.

The last time the S&P 500 lagged gold returns was in 2022 when the index had closed the year in the negative, says Jain. Prior to that, S&P trailed gold in 2020. Rising market volatility and geopolitical risks have been among the major factors in the remarkable performance of gold in 2024.

As Going Gets Tough, Gold Gets Going!

The years 2020, 2022, and 2024 — when gold outperformed both the S&P and the Nifty — have been marked by large-scale uncertainties. Marred by the pandemic, 2020 has been one of the most significant years in a century when the world faced unprecedented challenges. The year 2022, on the other hand, started on a violent note and it seemed that the planet is at the cusp of another world war as the Russia-Ukraine war proceeded with no signs of exhaustion from either end. It was a year of geo-political tension with high volatility on both commodities and currency fronts. The year 2024 was again unique, with 64 countries across the world going into national-level elections representing 49% people globally, according to a Time magazine report. The chaos of political campaigning created massive uncertainty within the countries as well as in the global arena. With most of the top 20 economies going into elections worldwide, the political upheaval translated into both geo-political and trade-related insecurity.

It is not by mere coincidence that gold prices surged in these years when pandemonium reigned across the globe. Central banks cumulatively purchased just 255 tonnes of gold post Covid in 2020, 350 tonnes less than 605 tonnes in 2019. However, the cumulative purchase went up to 450 tonnes in 2021, 1,089 tonnes in 2022, and 1,037 tonnes in 2023. Till the end of September 2024, central banks have purchased 693 tonnes of the yellow metal, almost in line with the pace of the previous year.

It is quite evident that following the pandemic, central banks have been wary of the constantly changing world order and have been shoring up on gold to hedge against any eventuality, natural or man-made. The Sino-Russian bonding challenging the U.S.-European hegemony, rising inflation engulfing almost all of the globe, and the biological insecurity arising after the Covid-19 virus have all fuelled the gold rush by central banks.

WGC’s Jain also concurs that gold’s strong performance in 2024 has been primarily driven by significant central bank and investor buying, which has more than offset a notable slowdown in consumer demand. Asian investors, especially from China and India, have been providing support alongside western investment flows in Q3 on the back of lower bond yields and a weaker U.S. dollar.

Will Gold Shine In 2025?

The dust from the national elections of 2024 is yet to settle, and policy changes will kick in beginning 2025. Additionally, speculation is rife that trade tensions between the U.S. and China may rise as a result of Trumponomics. There is also an impending political uncertainty in Germany and Japan, indicative of further chaos in the world order.

In India, the stock market has taken a despondent turn in recent months with heavy selling by FIIs and thus, gold may seem a safer investment option. According to WGC, current expectations for GDP, yields and inflation suggest a positive but modest growth for gold in 2025. The upside can come from much lower rates, rising volatility or continued above-average central bank gold demand, the agency adds.

Even though the 2025 yield on the yellow metal may not be as high as that of 2024, its predicted long-term return has consistently outpaced inflation and nearly matched global GDP growth. Gold’s dual character as a financial and real asset is demonstrated by this track record, which makes it a solid long-term investment option.