2023-12-04 14:50:07 ET
Summary
- Gold futures reached a new record high of more than $2,100 per ounce on Dec. 4, 2023.
- Factors contributing to gold's rise include low-interest rates, geopolitical tensions, and declining faith in fiat currencies.
- Other precious metals like silver, platinum, and palladium have not reached their record peaks and may offer value in the coming months.
In an Oct. 3, 2023, Seeking Alpha article on the abrdn Physical Precious Metals ETF ( GLTR ), I wrote:
Meanwhile, GLTR fell below the March $82.03 low for 2023 on Oct. 3. While low lows are likely, I favor buying the Aberdeen Physical Precious Metals Basket Shares ETF on a scale-down basis, leaving plenty of room to add on further declines. Precious metals are not ordinary commodities, and the potential for a significant rally remains high in the current environment.
Nearby COMEX gold futures had been under selling pressure and were trading below $1,850 per ounce on Oct. 3. On Friday, Oct. 6, the December futures price reached a $1,823.50 low before closing above the previous day’s high, putting in a bullish key reversal pattern on the daily chart. The Oct. 7 terrorist attack in Israel ignited gold, which gapped higher on Monday, Oct. 9. Gold futures made higher lows and higher highs through October, November, and early December, exploding to a new record peak above the $2,100 per ounce level on Monday, Dec. 4.
Buying gold on price weakness has been the optimal approach since 1999, when the price fell to a $252.50 low. The bull market will be 25-years-old in 2024 and shows no sign of ending soon.
New highs in gold: The bull market continues after a technical signal in October
Gold futures soared in the early hours of trading on Dec. 4, with the price eclipsing the $2,100 per ounce level for the first time.
The chart highlights the spike higher in COMEX gold for February delivery to $2,152.30 per ounce in the early trading hours on Dec. 4. The continuous contract reached a new $2,130.20 record peak.
The monthly chart illustrates the bullish key reversal pattern in October, where gold fell below the September low and closed above the September high, igniting the rally that took gold into record territory on Dec. 4.
The reasons gold is shining
Gold’s most recent move to an all-time high was a function of several factors:
- Gold is highly sensitive to interest rates. The precious metal held up well while the Fed moved the short-term Fed Funds Rate from zero percent in March 2022 to 5.375%. The recent economic data caused the central bank to pause rate hikes. Meanwhile, the U.S. 20-year Treasury bond futures fell to the lowest level since 2007 at 107-04 in October. The rebound to over the 117 level and the rising potential for Fed rate cuts in 2024 lifted gold as rates have declined and stabilized.
- Wars in Ukraine and Israel and the bifurcation of the world’s nuclear powers support higher gold prices.
- The faith in fiat currencies has declined. Gold is the world’s oldest means of exchange. Central banks validate gold’s role in the global financial system as they hold the precious metal as an integral part of foreign currency reserves.
- Central banks have bought gold, adding to reserves, over the past years. Over the first three quarters of 2023, central bank gold buying was 14% higher on a year-on-year basis.
- The bullish trend in gold is approaching its two-and-one-half-decade anniversary, and the trend is always a trader or investor’s best friend.
Gold’s new high on Dec. 4 is no surprise. The metal, which is a currency and commodity, has been a store of value for centuries. In an uncertain world, gold’s safe haven properties continue to propel the metal to higher highs.
Three other precious metals trading on the U.S. futures market
Gold is the leading precious metal that trades on the CME’s COMEX and NYMEX divisions. Silver is gold’s partner on COMEX, and platinum and palladium trade on the NYMEX division. While gold rose to a new record high, silver, platinum, and palladium prices remain below their record peaks.
Silver remains around one-half the price below $25 per ounce as it was at the 1980 and 2011 highs.
Platinum at $925 per ounce is far below the 2008 $2,308.80 peak.
Palladium at $973.50 per ounce is less than one-third the price at the 2022 $3,380.50 high.
With gold reaching new highs, the other traded precious metals offer value, which could lift their prices over the coming weeks and months.
Bull markets rarely move in straight lines: Buying dips has been the optimal approach
Bull markets rarely move in straight lines, and gold is no exception. Over the past 25 years, gold has suffered its share of pullbacks.
The quarterly chart shows gold’s significant corrections that have been buying opportunities over the past decade. New highs have typically led to substantial selloffs. The 2011 peak led to a 45.5% decline at the 2015 low. An 18.9% correction followed the 2020 high. Gold declined 22.4% from the 2022 high to the 2022 low. The Dec. 4 spike high may have led to a new peak but also created a bearish reversal in the gold futures market.
As the daily February COMEX gold futures chart illustrates, gold rose to a new high but settled below the Dec. 1 low on Dec. 4 at $2,042.20 per ounce. The Dec. 1 close was at the $2,054.30 level. Time will tell if the bearish reversal leads to a deeper correction or if gold has more upside in 2023. While another correction could be on the horizon, the 25-year bull market remains firmly intact, with a compelling technical and fundamental case for higher gold prices over the coming months.
GLTR owns physical metals with a concentration in gold
As of Nov. 30, 2023, the top holdings of the abrdn Physical Precious Metals Basket Shares ETF ((GLTR)) were:
GLTR allocates around 62% of its over $977 million in assets to gold. Silver is the second leading holding at nearly 28%, with the platinum and palladium allocation around the 10% level. GLTR trades an average of over 40,000 shares daily and charges a 0.60% management fee. GLTR’s website outlines the ETF’s objective:
GLTR is liquid and fungible as it diversifies precious metals portfolios within a standard investment or trading portfolio.
Gold first rose to a record high in 1980. It took 28 years for the precious metal to eclipse the 1980 peak. After a series of all-time highs from 2008 through 2011, gold’s next record apex took nine years as it rose over the $2,000 level for the first time in 2020. In 2022 and 2023, the rate of new highs has accelerated. Gold’s bull market has firm underpinnings, but that does not mean another significant double-digit percentage pullback is not in the cards. Time will tell if the bearish reversal on the daily chart on Dec. 4 is the beginning of another correction that follows the pattern over the past decades, creating another golden buying opportunity in the coming weeks and months. GLTR will move higher or lower with gold prices, but it owns the other three precious metals that could offer value at the current price levels. If gold prices correct, consider adding GLTR to portfolios, but leave lots of room to add on further declines as picking bottoms, even in the most aggressive bull markets, can be a dangerous game.
For further details see:
Gold Soars To New Highs: GLTR Delivers The Goods On Undervalued Precious Metals