With gold’s ascent occupying global headlines in recent weeks and reaching US$3,685.34 as at 15 September, Shane Oliver has weighed in on the outlook for future growth.
In his most recent newsletter, the chief economist said he anticipates further upside for gold over the medium-term due to its continued role as a hedge against the declining US dollar, increasing public debt and ongoing geopolitical concerns.
As Oliver explained, expectations for a resumption of global rate cuts lower the opportunity cost of holding a non-income producing asset like gold.
“Global interest rates look set to fall further keeping the opportunity cost of holding gold down,” Oliver said.
“Central bank rate cuts since 2023 are lowering the opportunity cost of holding gold. Expectations for a resumption of Fed rate cuts are adding to this. Low interest rates mean the missed income from holding a non-income producing asset like gold is low,” he said.
Other factors placing upwards pressure on gold include a weaker US dollar and rising inflation pressures, Oliver said.
“Demand for gold is likely to remain strong … Gold outperformed shares in the depression, underperformed in the post-war years, outperformed in the high inflation 1970s and underperformed during the equity bull market of the 1980s and 1990s,” the chief economist said.
“Gold is only now just starting to perk up …. The outperformance of gold versus shares may have further to go.”
But Oliver’s short-term outlook is less optimistic, with the economist tipping a near-term pullback.
“The risk of a correction in the gold price is high. After rising 40 per cent year to date to US$3,680 an ounce, gold is technically overbought and due for a pullback.”
Oliver noted “some of the things gold is sought to protect against may not happen” – including public debt concerns and a tariff-induced bump in inflation.
Moreover, he added that even if the feared new financial crisis does materialise, historically, crises have driven a weakening in the price of gold as investors are often forced to liquidate their readily convertible assets.
“[This] occurred initially in the GFC with the gold price falling 29 per cent between its high in March 2008 to its low in November that year,” he said.
Justin Lin, a gold expert at Global X, echoed Oliver’s sentiments, noting that a “sell-the-news” moment for gold could take place following the Fed’s rate adjustments, which would potentially lead to a minor price dip as investors take profit.
However, he agreed that the overarching trend for gold remains positive, adding that “the broader trajectory is upward”.
Looking forward, Oliver suggested that gold could serve as a portfolio hedge against significant currency depreciation and financial instability but advised a maximum allocation of 5 per cent via gold miner shares.
“There is a case for gold in investment portfolios, but its speculative nature suggests only a modest exposure and over the very long-term shares have done better than gold,” he said.
On the other hand, Lin recommended exchange-traded funds (ETFs) for investors seeking exposure to gold, adding that he anticipates Australia will achieve a record year for physical gold ETF inflows.
“While some investors have been buying gold bars from a broker or a mint, ETFs provide a greater liquidity and simplicity to invest in gold and silver, without having to worry about storage or insurance,” he said.
Oliver concluded that despite room for a hiccup along the way, the precious metal looks set to keep barrelling along for the time being.
“Gold is vulnerable to a correction, but the trend is likely to remain up as global interest rates fall and scepticism about paper currencies remains,” he added.
