The ultimate safe-haven, outperforming the S&P500. It was one of the great stories of 2024. Gold gained 27% in 2024, compared with a modest 23% for the New York Stock Exchange's flagship index. Gold isn't quite where you'd expect it to be, and its performance belies its historical correlation with real interest rates.

Historically, there has been a negative relationship between real interest rates (nominal rates minus inflation) and gold. Since gold is a non-yielding asset, the lower the rates (and therefore the lower the yield on bonds), the more attractive it is to hold gold. Conversely, the higher the rates, the less attractive it is to hold gold.

Since 2022, and the start of the monetary tightening cycle, this correlation no longer works. In the wake of the Fed's July 2022 rate hike, long rates have risen. But gold has risen along with them. As a result, gold continued to break records, while long rates (the US 10-year being the benchmark) reached levels not seen since before the 2008 crisis.

Uncertainties

There are several reasons why this relationship no longer works. Firstly, gold is the safe-haven asset par excellence. And the least we can say is that uncertainty has risen a notch in recent years. On the geopolitical front, between the return of war to Europe and a Middle East in turmoil, tensions are running high. And let's not forget the Taiwan Strait, where Chinese pressure is growing every year. Secondly, deficits are high in many countries around the world. From France, with a deficit that no one can estimate, to the United States, where no one seems to be really concerned (please blow up the debt ceiling), gold can be seen as a kind of refuge against this devaluation of currencies that does not speak its name.

Central banks fill their coffers

The main reason for gold's rise undoubtedly stems from a much simpler mechanism. Like any other asset, the price of gold depends on the balance between supply and demand. On this market, central banks are major buyers (around a quarter of demand), and they have been significantly increasing their reserves for almost three years now. The increase in central bank purchases roughly corresponds to the outbreak of war in Ukraine. The ensuing Western sanctions, which froze billions of dollars' worth of assets, prompted a number of central banks to desensitize themselves to the dollar, thereby reducing the dollar's weight in their reserves. China and Russia were the main buyers on the gold market.

Added to this is strong demand from private individuals in Asia. Since 2024, Chinese and Indian households have significantly increased their non-jewellery gold investments (+68% and +19% respectively, between Q1 2024 and Q1 2023, according to the World Gold Council), to diversify their assets. In India, because savings capacity has increased. In China, because the real estate and equity markets have fallen sharply.

For the months ahead, the consensus on gold is clearly bullish. Many strategists have their sights set on the $3,000 target. For all the reasons mentioned above, and because it's always good to post a big number.