The surprisingly cunning bull market for gold

James Mackreides claims that although gold's multi-year gains received less attention than one might anticipate, this is beginning to change

Gold is not as important to me. I can relate to a lot of the criticisms. It isn't a useful resource. It doesn't bring in any money. Since it requires storage, you could even argue that its yield is negative. The notion that gold is sound money is wishful thinking because we are not going back to it. All of these arguments make a lot of sense.

However, gold also has a long history of being a reliable way to store wealth, and there are good reasons for that. It's costly to mine and uncommon. Although it appears to be a social judgment, this opinion has persisted for thousands of years. It doesn't corrode, rust, or tarnish. It's thick. Since it has few industrial applications, investment or jewelry demandthat is, uses related to wealthdetermines its value. Certain desirable qualities are present in other materials, but gold combines them all.

Therefore, despite any strong arguments against it, gold is still valued by many, and that is what counts in the end. Even if you're not a gold bug, you can see that it behaves differently from other assets and that there are good reasons why that will probably continue for some time to come. This means that it can play a very helpful role in an investment portfolio.

Gold reaches a record high.

For investors, gold has undoubtedly performed exceptionally well recently. Real (inflation-adjusted) prices have surpassed the 1980 record, setting a new high. Although it would be an overstatement to say that it has gone unnoticed, the bull market has been surprisingly stealthy. Compared to the major bull run in the mid-to-late 2000s, there has been much less talk about gold. Even more unexpected is the fact that, after a few flat years, the amount of gold held by exchange-traded funds (ETFs), the most practical way for most investors to hold gold, is less than it was in 2020 - 2022, when the price of gold rose once more.

ETF-held gold.

(Photo courtesy of the World Gold Council) This lack of interest is beginning to change. The Financial Times and Bloomberg both published in-depth pieces about gold's recent highs earlier this month. Actually, neither was particularly flattering, suggesting that buyers are in the middle of being crazy and frugal. The only asset that the investment industry is truly desperate to discredit is cash because it earns nothing on cash savings, which is why the City is currently waging an incredibly misguided lobbying campaign to abolish the cash individual savings account (Isa). Gold bugs sometimes interpret this type of commentary as a purposeful attempt to discredit their favorite metal, which is a stretch. But it serves as a reminder that many investors find gold to be a little unsettling.

Perhaps it's the persistent feeling that gold is rising because the world is changing, not because of a mania or bubble (yet). Specifically, the building up of gold reserves by central banks in emerging markets (like China) as they attempt to diversify away from the dollar has likely been a key driver of demand. Even now, it seems like a long-term pattern. Watching those ETF flows and making any additional purchases as gold emerges from the shadows would be a beneficial extra boost.