Some investors may be wary of buying any asset or instrument near its highs; however, not all assets are equal. It’s not the same to consider a stock at its highs when it trades at triple-digit price-to-earnings (P/E) valuations compared to looking at a dollar-quoted commodity like gold or silver, knowing that a new inflation run could return to the U.S. economy.
Today, several trends in the stock market show participants are starting to bet on all of the assets that do well during inflation and also betting against the assets that don’t do so well during inflation. Knowing this, the fear of buying gold near its highs could quickly turn into a fear of missing out on this precious metal, going to a price of $3,000 or more for all the right reasons.
Here’s all the evidence investors need to consider, from the commodity markets to the stock market, to confirm the run gold prices will have in the coming quarters. Countries are stockpiling gold, and big traders and institutions like the setups in names like Barrick Gold Corp. (NYSE: GOLD) and the SPDR Gold Shares (NYSEARCA: GLD), as the fundamental trends work as tailwinds to keep the price of gold running hotter than it is today.
Here are all the bets being made in favor of gold prices going higher
Over the past couple of years, countries like China, Turkey, and India have been aggressively stockpiling gold reserves. At the same time, China is experiencing a stimulus run in its economy as money printing and rate cuts help bail out its underperforming stock market.
Then, there is the aggressive fall in bond prices in recent weeks, as seen in the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT). Lower bond prices translate into higher yields, which is the market’s way of telling the Federal Reserve (the Fed) that it made a mistake in cutting interest rates recently.
This view tells investors that inflation might make its way back, a view taken by two of Wall Street’s best minds. Paul Tudor Jones and Stanley Druckenmiller agree on taking a short bias on the bond market and also see commodities as a great place to be, a strategy that does well any time inflation goes on the rise.
Some may wonder if this is the view today, why gold and not other basic material names? Uncertainty. The uncertainty of whether the world will fall into inflation or recession keeps investors running to gold more than ever before, as the commodity will outperform in either of these outcomes.
Bitcoin prices are now flirting with all-time highs again. Bitcoin is a proxy for gold as it is the decentralized proxy for fiat currency value, gold’s distant cousin. A bet on Bitcoin is, by extension, a bet on gold, and when it comes to today’s market, public perception matters much more than fundamentals.
How Wall Street and the Market Are Betting on Rising Gold Prices
Analysts at Goldman Sachs now think that gold could reach a high of $3,000. While this is bullish enough for investors to consider, they have to remember that this target was set at $2,500 just a few months ago. As the goalpost keeps increasing, more investors will feel comfortable plunging into gold.
Since gold markets are decentralized in specific ways, getting information on the actual buy flow might be a little harder. Investors can turn to the futures market, particularly the commitment of traders' reports. As of today, institutional investors have accumulated the most gold futures in the past five years.
More than that, institutional investors have allocated up to $5.3 billion collectively into the SPDR Gold Shares ETF over the past 12 months, led by those at Bailard Inc. with a 0.8% boost in holdings as of October 2024 to net their current position at $79.1 million today.
On an individual stock level, investors can look at some of the analysts' actions surrounding Barrick Gold, one of the industry's biggest names. Those at Raymond James recently placed an "Outperform" rating for Barrick Gold stock, pushing for a $26 price target to call for a net upside of 36.5% from where the stock trades today.
More abstractly, Michael Burry and David Tepper's big bets on Chinese stocks say something about gold. For overseas stocks to do well, the dollar index has to decline, causing dollar-denominated securities to appreciate.
Therefore, bets in bonds, commodities, and stocks (domestic and foreign) all seem to line up with a bearish inflation view for the dollar. In this case, all roads will lead to gold prices pushing to—and potentially past—Goldman's target of $3,000.
