By Myra P. Saefong
The precious metal’s long-term strength remains ‘undeniable’
The value of gold has nearly doubled in the past five years, crossing the $3,000-an-ounce threshold for the first time ever late Thursday – and the precious metal’s latest move may be signaling a structural shift in the sector that may feed long-term strength.
“The gold market isn’t just reacting to economic conditions, it’s revealing deeper structural issues that could reshape the industry,” with trust in paper gold markets “eroding,” said Alex Ebkarian, chief operating officer and co-founder of precious-metals dealer Allegiance Gold.
Gold futures for April delivery (GC00) (GCJ25) touched $3,001.10 an ounce late Thursday on Globex. That marked the first time a most active contract crossed the psychologically important $3,000 level.
“Gold is in a secular bull market and is ignoring possible headwinds from rising Treasury yields and short-term profit-taking,” Ebkarian told MarketWatch. “Instead, it’s responding to cumulative macroeconomic fears: declining consumer confidence, persistent inflation, expanding job cuts and geopolitical uncertainty around tariffs.”
‘With markets appearing overvalued and central banks worldwide accelerating de-dollarization by bolstering their neutral gold reserves, gold’s long-term strength remains undeniable.’ Alex Ebkarian, Allegiance Gold
And “with markets appearing overvalued and central banks worldwide accelerating de-dollarization by bolstering their neutral gold reserves, gold’s long-term strength remains undeniable,” he said.
Concerns over tariffs have disrupted gold’s supply chain, prompting large wholesale dealers and commercial banks to transfer physical gold from the London Bullion Market (LBMA) and Bank of England to the U.S., Ebkarian said. The bigger story, however, is “unfolding beneath the surface.”
Read: Why there’s now ‘incredible demand for physical gold’ in New York markets
The real issue is a growing “disconnect between paper gold and physical supply,” he said.
There is increasing concern that the LBMA and Bank of England may not have enough gold to meet demand, leading investors to rush for physical possession of gold, he said. Most gold futures contracts typically settle in cash at expiration, but in January, there was an unusual spike in contracts opting for physical delivery, he said.
Although the LBMA has reported that moving gold to the U.S. slowed in February compared to January, “it is evident that the shift from globalism to nationalism has triggered many countries to patronize the gold back to their homeland,” said Ebkarian.
Arbitrage traders have also been capitalizing on the price gap between Western exchanges, such as the LBMA and Comex, and China’s Shanghai Gold Exchange International (SGEI), which continues to pay a premium for physical delivery and is “predominantly settling in physical gold” as opposed to cash, said Ebkarian. That suggests “trust in paper gold is eroding, and investors are taking action to reduce counterpart risk by securing physical ownership,” he said.
Dollar’s decline
At the same time, weakness in the U.S. dollar, which boosts dollar-denominated gold’s appeal to holders of other currencies, may continue to support gold’s rise.
Global tariff disruptions, coupled with the U.S. budget deficit for the first five months of fiscal 2025 reaching a record $1.147 trillion – on top of the all-time high debt – has led to the dollar’s decline, said Ebkarian.
The U.S. dollar, based on the performance of the U.S. Dollar Index DXY has lost 4.3% year to date as of Thursday. That’s the worst year-to-date percentage change since 2008, according to Dow Jones Market Data.
There’s potential that the dollar has peaked, said David Russell, global head of market strategy at TradeStation. If that’s the case, then the dollar may weaken in the next year or two – and “that’s something that creates a structural bid for gold.”
Assessing opportunities
With gold having rallied to record levels, there are lots of opportunities for precious-metal investors to consider. There’s also one aspect of the precious-metals market that has yet to catch up.
Gold miners, as represented by the VanEck Gold Miners exchange-traded fund GDX, have lagged behind, and are “only just now gaining traction with institutional investors,” said Russell. Gold futures far outpaced the ETF’s performance in 2024, with the metal up about 27.5% last year versus the ETF’s nearly 9.4% climb.
These are the “early stages of institutional involvement in the gold miners,” Russell said. GDX has been playing catch-up so far this year, trading up by roughly 27%, while gold futures have climbed 13.3%.
Investors who prefer convenience and want exposure to gold over the short term, may want to consider ETFs rather than owning the physical metal, said Allegiance Gold’s Ebkarian, adding that ETFs are fairly liquid, in case you need cash quickly.
However, ETFs such as SPDR Gold Shares GLD may come with an annual 0.4% recurring management fee, and keep in mind investment is “tied to the grid and stock exchanges,” he said.
For investors who want to “leverage on the potential move in the commodity prices, and have an appetite for a higher level or risk,” investing in a mining company may be a good option, said Ebkarian. This would require time to research each mining company so that you are aware of the management’s prior success record and investing in miners comes with “counterparty risk along with geopolitical risk if the mining company is located abroad.”
Gold futures and options contracts, meanwhile, are the “most risky” of the way to invest in gold and requires “specialized knowledge and training,” he said. These are best for “someone who is already a sophisticated gold investor with a high tolerance for risk and understands how to trade derivatives and their margin requirements.”
All told, investors need to understand the investment instruments they are using, said Russell, whether those are ETFs or physical gold, as they have potential “positives and negatives.”
However, he believes gold has the potential to be in a “win-win scenario” as inflation remains high.
Even if the Federal Reserve were to raise interest rates, it would be a “tough spot,” and a stagflationary environment – one with high inflation, high unemployment, and low economic growth – would be good for gold, Russell said.
-Myra P. Saefong
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03-13-25 1709ET
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