Another property of gold is that it cannot be created and can only be obtained through mining—unlike currencies, which can be printed at the discretion of central banks, thus reducing their value.
These characteristics make gold the ultimate hedge against currency depreciation and economic instability, driving demand from investors seeking to safeguard their capital.
This so-called safe-haven demand has driven gold’s uptrend since the hyperinflationary period that started in 2022, but recent geopolitical chaos and increasing economic uncertainty have fueled a fresh surge in gold’s price in recent months.
The price of metals like silver and copper, which typically track gold prices, has also followed suit.
As a result, Philippine mining stocks saw a renaissance of sorts, with the Mining & Oil sector index outperforming the rest of the market with a year-to-date (YTD) return of 80.25 percent.
The de-dollarization of central banks
Aside from safe-haven demand for gold, another key driver of gold prices is increased buying from central banks, which act as gigantic whales in the golden ocean with their massive purchasing power.
The latest data show that central banks now hold more gold than US Treasuries for the first time since 1996, reflecting a clear shift and gradual diversification away from the dollar and dollar-denominated securities toward physical assets, as economic uncertainty and rising debt risks loom.
Notably, the central banks of China, Russia, and Türkiye have been the largest official buyers over the past decade.
Where does gold go from here?
As far as we can tell, there are two types of gold buyers: conviction buyers—who tend to purchase gold consistently regardless of price, like central banks, ETFs, and speculators—and opportunistic buyers, such as households, who step in when they believe the price is right, providing a floor for prices on the way down.
Earlier this month, gold easily broke past the psychological resistance at $4,000/oz and is now consolidating around $4,300/oz.
Unfortunately, since gold’s price is mainly driven by sentiment and demand-supply dynamics as discussed above, there is no reliable model that can forecast where the price of gold will be a year or two from now.
However, current trends clearly indicate a generally sustained upward momentum, and we feel that gold is more likely to exceed estimates than undershoot them.
Not risk-free!
However, it is important to remember that gold is not the greatest investment of all time, and the phrase “gold only goes up” is a myth.
As with any other investment, there is a risk of a strong correction once momentum overtakes the fundamental reasoning behind why you buy into an asset.
We have already established the reasons why gold hedges well against currency depreciation and economic instability, and the current economic backdrop still supports the likelihood of sustained demand for the yellow metal.
As we see it, the only driver that can reverse gold’s course at this point is a quick turnaround in the macroeconomic scene—which, unfortunately, we are not expecting. Thus, the narrative that drives gold’s safe-haven demand could continue into the following year or even beyond.
Gold miners in the Philippines
The hype over gold is a global phenomenon, but for the average Filipino investor, the only way to ride the gold wave is to either buy actual gold jewelry, as recommended by our Tita/Tito and Lola/Lolo, or to buy mining stocks.
For us, we have been looking at APX, PX, and OGP since the start of 2024 as they race to post the highest YTD return for the year, and these stocks have powered the biggest rally we have seen in the Mining & Oil index since 2011.
OGP investors, in particular, hit the biggest jackpot as they not only gained from capital appreciation but also received hefty cash dividends.
The investment thesis here is that the steep climb in gold prices would be more than enough to offset the decline in production volumes as mining companies deplete their resources, allowing topline growth to continue and operating margins to expand.
Financial market recommendations and comments on InsiderPH News belong solely to the analysts and institutions making them. They do not represent buy, sell or hold recommendations of InsiderPH News. Investments held by analysts or institutions may influence their recommendations. Investors should conduct their own research and carefully evaluate all relevant market information before making investment decisions. As always, the past performance of any investment does not guarantee its price appreciation in the future.
