Gold prices have performed strongly this year. So, what is preventing a larger increase? The answer may lie in investors' excitement over the boom in U.S. stocks like Nvidia.
Gold prices have surged nearly 30% this year, driven by central bank purchases and other factors. A report by strategist Mike McGlone noted that, compared to other assets (including commodities like oil and base metals), this rally has brought gold prices to historical highs.
However, there is one exception – U.S. stocks, which are experiencing their own historic rally. The S&P 500 is currently at around 5,885 points, approximately 2.3 times the price of gold, the highest level since the internet bubble. With stock prices so high, U.S. investors have not been paying much attention to gold.
According to the World Gold Council, North American gold exchange-traded funds hold around 1,640 tons of gold. Despite the significant rise in gold prices, this is still lower than the peak of over 2,000 tons in 2020.
McGlone said in an interview on Wednesday, “U.S. investors' mindset seems to be, ‘Gold is great, I like it. But compared to that, how are my Nvidia stocks doing? How is my QQQ (Invesco QQQ Trust) and the S&P 500 performing?’”
However, McGlone also pointed out that, given that U.S. stocks seem to be overpriced, this sentiment could change at any time. He said, "We haven't experienced a 10% pullback since October last year. For me, that's the next big catalyst for gold prices — when the stock market experiences a pullback."
Aside from the indifference of U.S. investors, other price drivers for gold appear to be solid. After President-elect Trump won the election on November 5, investors looking to use gold as an inflation hedge had more reasons to buy. Trump's presidency increased the likelihood of import tariffs, which would raise consumer prices in the U.S., and he promised more unfunded tax cuts, which would increase the deficit.
Meanwhile, geopolitical risks continue to disrupt the market, with conflicts in the Middle East and Ukraine still ongoing. On Monday, both gold and U.S. Treasury bonds rose after Russian President Putin signed a decree that seemed to increase the chances of nuclear war. Meanwhile, Trump's unpredictable foreign policy adds another layer of uncertainty.
