Investors rethink gold as record rally retreats
After months of record-breaking gains, gold’s rally has hit a wall.
The precious metal, which was seen as a safe haven against ballooning government deficits and global uncertainty, tumbled on Wednesday, plunging by over 6.3 percent to trade around $4,178.23 per ounce.
The sudden reversal, sparked by prospects of trade talks between China and the US, immediately tests the conviction of investors, raising the critical question as to whether the dip signals the end of the gold bull market or is the tactical correction new buyers have been waiting for.
Read also: North Africa dominates, as Africa’s gold reserves hit $91.7 billion
The investor’s rationale
Individual and institutional investors had piled into gold for a variety of defensive reasons.
“Some are buying gold as a hedge against a possible AI-driven bubble in stocks, citing unease over high price-to-earnings (P/E) ratios and the heavy concentration of mega-cap tech stocks in the S&P 500,” said AbdulRauf Bello, portfolio manager at Cowrywise.
Bello also said that the belief that gold can offset the persistent depreciation of the U.S. dollar, whose global confidence has been shaken by high debt levels, is one reason for the rally.
However, the rally is not marked by widespread panic. The CBOE Volatility Index (VIX), a key gauge of market fear, remains low, supported by solid corporate fundamentals and strong U.S. gross domestic product (GDP) figures.
Navigating gold market
Oghenerukevwe Odjugo, equity analyst at Schroders, a multinational asset management company, mentioned that three key questions determine whether or not an investor should buy gold today.
“Firstly, do you think we get more or less geopolitical uncertainty in the next two to 10 years or however long you want to invest in gold for?” she asked.
Oduijo also pointed out that the price an investor pays matters. “The mental challenge with investing in an asset that has risen a lot is, you have to believe it can rise some more. Interestingly, in the last month, the gold price has risen virtually every day. Will the same thing happen next month? ”
Lastly, investors should ask themselves if the decision to buy gold is from fear of missing out, she said.
Tosin Olaseinde, CEO, MoneyAfrica, a personal finance platform, said that with as little as N5,000, $5, or £5, you can start owning a piece of one of the most timeless and trusted assets in history.
Read also: Gold crosses $4,000 for first time, building on historic rally
Central banks lead de-dollarisation drive
The strategic shift towards gold is most pronounced among global central banks, which bought a record 1,136 tonnes of gold in 2022, maintaining a strong accumulation pace in 2023 and 2024.
This action is part of a decade-long pattern of global central banks’ reducing reliance on the U.S. dollar, shaken by factors such as deglobalisation, mounting U.S. debt, and rising deficits.
Morgan Stanley suggests the record rally is part of a larger global financial reset. The potential for gold to back stablecoins or digital assets could eventually challenge the USD’s dominance in global trade, further fuelling the gold bull market.
The current share of gold (24 percent) in central bank reserves is the highest since 1986, though it still falls short of the 1980 high of 60 percent. Despite this diversification, demand for U.S. treasuries remains strong, suggesting the dollar’s dominance will not vanish overnight.
In Ghana, gold has hovered around 30 percent of its reserves for a while. At current prices, the value of gold in Ghana’s reserves is $3.6 billion. Just last year, the same amount of gold would have been worth $2.3 billion.
“Whilst the gold portion of our reserves today can cover 1.7 months of imports, the same amount of gold exactly a year ago would have covered just about a month of imports. In short, gold is a volatile component of our reserve,” Bright Simmons, a Ghanaian social innovator and political commentator, tweeted on his page.
Five gold investment options that offer strong returns, low entry points….
Agnico Eagle Mines (AEM)
This is a senior Canadian miner operating in low-risk regions with a no-hedging policy, giving investors full exposure to gold prices.
Newmont Corp (NEM)
One of the world’s largest gold producers with a strong portfolio of long-life mines across the globe.
Franco-Nevada (FNV)
This is a royalty powerhouse that funds mines in exchange for a share of its revenue – offering exposure to gold without operational risks.
Read also: Nigeria’s gold, limestone, bitumen production rising — Miners Association
Gold Fields (GFI)
It is a globally diversified producer with roots dating back to 1887, operating across Australia, South America, and Africa.
Kinross Gold (KGC)
This is another Canadian giant with solid operations across the Americas and West Africa, focusing on mining-friendly regions.
Nigeria also has a gold ETF listed on its bourse, titled New Gold ETF. Its price has also risen in recent times.
