Franklin Gold And Precious Metals Fund Q4 2024 Commentary

2025-02-05 06:55:00 ET

Summary

• After reaching all-time nominal highs amid sustained haven demand, gold prices plateaued in 4Q24, ending the quarter with a -0.4% return in the spot market, to $2,625 per troy ounce.
• The fund sustained widespread absolute declines across all seven of its industry allocations but fared better than the FTSE Gold Mines Index given the strength of our stock selections among gold producers.
• Gold was rangebound and a little directionless in December, closing one day above $2,700 per troy ounce and two days below $2,600, as the numerous crosscurrents filtered through the gold market.

Performance Review

• After reaching all-time nominal highs amid sustained "haven" demand, gold prices plateaued in 4Q24, ending the quarter with a -0.4% return in the spot market, to $2,625 per troy ounce-a quiet end to its best year (+27.2%) since 2010. Gold's strong 2024 gains may signal a possible shift in the market's dynamics given they have come despite a rallying US dollar (+7.6% versus other major currencies to the highest levels since November 2022) and rising real (i.e., inflation-adjusted) US Treasury yields, as both are typically headwinds for gold. Its annual advance was fueled by US monetary policy easing, a stream of geopolitical risks and continued purchases by central banks. Conversely, investors reduced exposure to gold-backed exchange-traded funds (ETFs) for a fourth straight year in 2024 despite the backdrop of repeated record-high prices and the start of monetary easing by the US Federal Reserve. At the same time, geopolitical risks from the conflicts in Ukraine and the Middle East saw central banks in emerging market countries, Asian investors, and consumers flock to gold bullion as a portfolio diversifier and hedge. While bullion ticked slightly lower through year-end since Donald Trump's sweeping victory in November's US presidential election, its gains over 2024 still outstripped most other commodities (including all other precious metals). Silver prices were down 7.2% in 4Q24 (to US$28.90 per ounce), reducing its 2024 gains to 21.5%. Platinum and palladium, meanwhile, were down for the quarter (-7.6% and -9.0%, respectively) and the year (-8.5% and -17.1%). The palladium market spent most of 2024 trying to recover from six-year lows, while platinum has been rangebound near or below $1,000 per ounce since mid-2021. Aside from precious metals, copper (-10.8% in 4Q24, to $8,768 per metric ton, the lowest level since 2020) and all other major base metals traded lower in 4Q24 while investors waited for clearer demand signals as they attempted to sort out an array of challenges, including (1) economic stagnation in China, (2) weak global demand, (3) stable or increased supply, and (4) higher inventory levels. For 2025, the market is focused on whether there will be a sturdier recovery in global manufacturing activity and China's embattled property market, a key demand pillar for base metals. Commodity-linked equities mostly underperformed physical commodities over the October-December span, as was the case for metals and mining stocks, including some gold producers, many of which ended the period with substantial losses.

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