The worth of gold has surged to an all-time high amid the stock market’s ongoing pullback, a disappointing jobs report and rising tensions within the Middle East.
The dear metal set a recent record when it hit $2,474 per troy ounce Friday morning on the back of weak employment data, a weeks-long selloff afflicting the most important market indices and renewed rhetoric between Israel and Iran. Gold prices have posted a year-to-date gain of 21%, in comparison with 12% for the S&P 500.
Why gold prices are rising to record highs
In accordance with the U.S. Bureau of Labor Statistics, the unemployment rate hit 4.3% in July, the very best reading since October 2021. Moreover, only 114,000 non-farm jobs were added.
This has fueled speculation in regards to the Federal Reserve’s inability to perform a soft landing in its quest to lower inflation while keeping the economy strong. But with the likelihood of September rate of interest cut at 100%, in keeping with the CME Group’s FedWatch Tool, gold prices — which are inclined to strengthen alongside lower rates of interest — have benefited.
At the identical time, the S&P 500 and Nasdaq continued their descent despite tech firms reporting strong second-quarter earnings and revenues. The S&P is down -6.02% since July 16, and the tech-heavy Nasdaq Composite has fallen -10.78% since July 10. Meanwhile, gold is up around 6% since July 1.
Precious metals usually and gold specifically often exhibit negative correlations with stocks and other asset classes that have more price volatility. Generally speaking, when stock prices fall, gold prices are inclined to rise.
One other factor propelling the price of gold is renewed conflict within the Middle East. On July 27, Israel blamed Iran-backed Hezbollah after a rocket attack within the Golan Heights killed 12 children. Israel retaliated on July 30 with strikes inside Beirut and Tehran, that latter of which killed Hamas leader Ismail Haniyeh. Geopolitical unrest tends to be a positive driver for the worth of gold, because it’s viewed as a price-stable and a store of value.
Do you have to put money into gold?
Gold has historically been used to mitigate overall portfolio risk as a safe-haven asset. And while owning the physical metal might not be ideal for retail investors, there are many ways to put money into gold and other precious metals.
Essentially the most common approaches to doing so are through gold miner stocks and gold exchange-traded funds, which supply alternative exposure to the metal without having to take care of ownership of gold itself.
Nevertheless, over-allocating to gold is just not advisable. The dear metal has underperformed stocks in the long term. Over the past five years, gold has gained 68.67% while the S&P 500 has returned 81%.
It is usually advisable to take a position not more than 10% of a portfolio in the choice asset reminiscent of gold. Moreover, when investors buy any asset at or near record highs, short-term losses are usually not unusual.
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