Gold Goes Bullish – Should You Boost Your Portfolio Allocation For This Commodity?

Gold’s price has been on the uptick for decades, culminating in an all-time high in December 2023. Discover what causes gold’s price to rise, and whether you should include or boost its allocation in your investment portfolio.

Gold bars representing gold trading

vc newsletter signup

People have recognised gold’s value for millennia, with the precious metal initially being used for decorations or as objects of worship by society’s elite. Today, gold is actively traded around the world, whether physically or as an instrument in various markets. In December 2023, its price even hit a record high of US$2,150 per ounce (~31.1g).

2024 appears to be no different, with experts forecasting a continued bullish trend for gold. This begs the question: What can investors do to benefit from gold’s upward trajectory? Read on to find out, and discover how you can seamlessly trade gold with City Index, one of the world’s leading contract for difference (CFD) and forex providers.

Related: Going For Gold — How to Invest in This Commodity

What Are the Factors Influencing the Rise in Gold’s Price?

1. A Weaker US Dollar

Historically, the strength of the US Dollar (USD) is inversely proportional to the price of gold. As the USD weakens and investors lose confidence in fiat, demand for gold grows because people purchase it as a safe haven asset. This then leads to gold’s price rising.

In 2024, a weaker USD has the potential to be a factor in keeping gold’s price up, or even pushing it higher.

This is because the US Federal Reserve (Fed) has been holding interest rates steady since July 2023. What’s more, the Fed is currently projecting interest rates to end up at 4.6% in December this year, down from the benchmark rate of 5.5% right now. This is another reason why experts are largely bullish on gold in 2024.

2. Lower Treasury Yields

Gold has the same relationship with not just the USD, but US treasury yields too. The price of gold and treasuries have a positive correlation, but it’s the opposite with the yields of treasuries. For example, treasury yields fell on 25 January 2024 while gold’s price rose because US economic data indicated that inflation is slowing.

On the other hand, as yields rise, gold’s price drops because investors are reallocating their funds to various US treasury products (bonds, notes, etc.). Gold does not generate an interest while the yield from treasury products is paid out at a fixed interval.

That’s why lower US treasury yields usually lead to an increase in gold’s price. Investors decide that the capital gains for gold would outstrip the interest payments they receive from US treasury products they initially planned to purchase.

3. Inflation

Inflation data from World Bank

Source: The World Bank

For the past two to three years, inflation was a huge concern globally. According to The World Bank, the global inflation rate in 2020 was 1.9%. In 2022, this figure ballooned to 8%. High inflation generally hurts one’s purchasing power (AKA inflation-adjusted income), because the cost of goods and services rise at a disproportionate rate.

When inflation is high, the stock market is usually affected as well. Uncertainty and volatility creep in, along with slower consumer spending because of uneven price increases.

Therefore, investors tend to reallocate their capital to safer assets like gold. Although central banks around the world have been boosting interest rates to combat inflation, the estimated global headline inflation for 2023 (at the time of writing) is still 6.9%.

As a result, potentially persistent inflation can be a reason for an increase in gold prices, which in turn makes investing in gold a way to hedge against inflation. Experts also forecast that gold’s price would continue to rise in 2024.

What Are the Pros and Cons of Investing in Gold?

Advantages of Investing in GoldDisadvantages of Investing in Gold
– You diversify your portfolio, gaining the opportunity to manage risk and optimise returns.

– You can hedge against inflation as gold’s price tends to rise when inflation goes up.

Gold is a liquid asset. If you require funds urgently, selling your holdings is quick and straightforward.

– Gold has a demonstrated history of preserving its value. From the 1800s to present day, its price has risen by over 9,500%.

– If you plan to hold a large amount of physical gold, storage and insurance costs can eat into your profits.

– Gold does not provide an income stream. There are no dividend payouts, whether you hold it physically or via an exchange-traded fund (ETF).

– Adding gold can increase the complexity of your investment portfolio. Additionally, it takes time and effort to become familiar with the precious metals asset class.

– Gold’s price can still swing wildly during certain periods. For example, it dropped from US$1,772.26 in September 2012 to US$1,060.94 just three years later.

Gold’s price might have risen throughout 2023, but there are still clear-cut advantages and disadvantages to investing in this precious metal. Always do your due diligence before deciding whether to invest in gold. And if you do decide to invest in it, select the right instrument and platform.

How Can I Invest in Gold?

Your job isn’t done after you’ve performed your research on investing in gold. You still need to pick the appropriate instrument and investment platform. Here are three ways to invest in gold, along with their pros and cons.

Method #1: Purchase Gold Bullion

This is the method that immediately comes to mind for most folks when they hear “gold investment”. Here’s a quick lowdown of the pros and cons of buying and storing physical gold bars or coins.

Pros

  • Buying physical gold is fast and seamless. There are licensed precious metal dealers around Singapore, and prices are usually listed clearly. This allows investors to make a fair comparison between the different dealers.
  • Physical gold is a tangible asset. Actually seeing and feeling it gives you peace of mind, especially if you need to swiftly liquidate it during times of uncertainty.
  • Physical gold is fairly value-dense. Even at its lowest price in the past decade, 1kg of gold was still worth over US$33,000.

Cons

  • Investing in gold bars and coins also requires you to invest in storage and insurance. This eats into your profits, no matter how long you plan to store your gold for.
  • Gold does not generate an income. Your profits from investing in gold are purely based on capital gains.

Method #2: Invest in a Gold ETF

Another popular method of investing in gold, especially among the digitally savvy, would be buying into a gold ETF. This instrument grants investors exposure to gold by tracking its price changes. Here are the benefits and drawbacks of investing in ‘paper’ gold.

Pros

  • Gold ETFs are highly liquid. You can easily buy or sell shares of your preferred gold ETF through an online brokerage during trading hours.
  • Transaction costs are usually lower than purchasing and storing physical gold, with no storage charges and insurance premiums to account for.
  • There’s no need to search for a safe or rental facility when you invest in a gold ETF. This removes an extra step, allowing you to invest in gold quicker.

Cons

  • Although you gain exposure to the precious metal asset class and gold’s price changes, you don’t actually own it (although some investors consider this to be a benefit instead of a drawback because you benefit from the changes in gold’s price without the downsides of owning it).
  • There’s market risk as well—the ETF’s asset management firm may liquidate assets when a number of situations arise, e.g. if its net asset value falls below a certain threshold.

Method #3: Trade Gold CFDs

Whether you’re a short-term or long-term investor, trading gold CFDs can play an important part in granting you exposure to precious metals, especially on a trusted platform like City Index.

Pros

  • If you are already investing in gold, you can take a short position in a gold CFD to hedge against any potential price corrections in the near future. The unrealised losses in your portfolio are offset by similar gains in your trade.
  • Trading gold via a CFD grants you access to leverage, allowing you to gain more exposure with less capital. On City Index, your maximum leverage is 50:1 if you hold Accredited Investor status. For retail traders, you still have access to a generous 20:1 leverage.
  • This is specific to the platform you select, but CFD providers like City Index grant you access to a wide range of assets, not just gold. This allows you to further diversify your portfolio and hedge against your other investments too.

Cons

  • Akin to investing in a gold ETF, you don’t own actual gold when trading its CFD. As its name suggests, you’re capitalising on the difference in price when you enter and exit your position.
  • Trading CFDs takes time and effort to learn. However, established platforms like City Index do provide the necessary educational resources, and advanced trading tools and charts to help you on your trading journey.

How Do I Trade Gold?

chart showing the price of raw spread gold

With City Index, trading gold CFDs via the raw spread market is a cinch. There’s no better way to kickstart your investment in the world’s top precious metal than with a globally trusted CFD and forex provider who’s been in the business for more than 40 years. And because you’re trading gold in this particular market, the spread is just 0.15 points.

Furthermore, City Index charges ultra-competitive spreads on CFD or forex trades, apart from equity CFDs. This means that you extract maximum value from each gold trade you make. However, do note that other fees like overnight financing still apply to CFD and forex trades.

Here’s how you can start trading gold on City Index in three simple steps.

1. Register for an account

Account registration page for City Index

Opening a City Index account takes just four quick steps. The process is even more seamless when you opt to apply via Singpass Myinfo. If you’re not ready to open a live account yet, you can open a demo account with US$20,000 in virtual funds first to practise and test your trading strategy with zero risk.

That’s not all. New City Index users stand to receive welcome trading fee rebates of up to S$888 for their first 60 days of trading when they sign up by 29 February 2024. This includes not just gold CFDs, but forex, equity, and other commodity CFDs too.

The charges for trading these asset classes are just as competitive as the raw spread market for gold, starting at 0.5 pips for the EUR/USD and USD/JPY forex pairs. If you prefer equities, the spread for the US SP 500 index CFD is set at a minimum of 0.4 points.

What better way is there to ring in the Year of the Dragon?

2. Fund your account

Funding page of a City Index account

You can easily fund your City Index account through five different methods: credit/debit card, PayNow, an internet banking or FAST transfer, via a bill payment, or a wire transfer. City Index recommends a minimum deposit of S$2,500 before you start trading gold. However, you can trade with as little as S$150.

3. Make a trade

Mobile trading interface for City Index

Once you’re ready, you can trade gold on the raw spread market via one of City Index’s various platforms. If you’re out and about, you can make a trade on its intuitive mobile app, which is available on both iOS and Android. If you’re in the comfort of your own home, City Index’s browser-based trading platform, Web Trader, will be your tool of choice.

Desktop trading interface for City Index

The latter boasts customisable workspaces, detailed performance analytics to track your trading patterns, and SMART Signals to help you gather trading signals backed by years of historical market data. 2024 is definitely the year for you to take a big step forward in trading.

In Closing

Although gold’s price hit an all-time high in December 2023, experts are still forecasting that the precious metal has room to run in 2024. This is due to a combination of factors listed above, and not just any single one in isolation. Bear that in mind when you’re doing your due diligence before trading or investing.

You can take advantage of this market opportunity with City Index and enjoy maximum value from every trade you make.

Remember, sign up for an account by 29 February and receive up to S$888 in cashback during your first 60 days of trading!

Start trading gold with a razor-thin spread of 0.15 points today. Click here to find out more. 

Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by ValueChampion or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

This advertisement has not been reviewed by the Monetary Authority of Singapore. Terms and Conditions apply. For detailed terms and conditions and full disclaimer, please refer to City Index’s website at https://www.cityindex.com/en-sg/.

This post was sponsored by and written in collaboration with City Index. ValueChampion (part of AMTD PolicyPal) remains committed to maintaining our editorial integrity by providing the most accurate information and reviewing products with an objective lens. We strive to be an unbiased source of news and content, and are dedicated to helping our readers in their financial wellness journey.

valuechampion telegram

Read More:

Cover image source: Unsplash