The case for gold in 2024

gold mining


James Luke
Fund Manager, Metals

When interest rates rise and real rates on government bonds turn positive, the price of gold usually falls, but that is not what has happened over the past 18 months.

Gold currently near all-time highs

Gold prices are now hovering around US$2000 per ounce, which is around the all-time highs. What makes it unusual is that gold is at these levels despite a very significant increase in real interest rates in the US over 2022 and 2023.

Before 2008, gold really traded more of its commodity characteristics (including jewellery demand and with emerging markets currencies) and less in line with real interest rates. The real pivot point was following the 2008 Global Financial Crisis, a broad policy response of quantitative easing was introduced, which in effect just meant printing money to buy more government bonds to suppress interest rates.

From an investor perspective, this change raised concerns about long-run monetary debasement and caused a strong underlying bid for gold because of its monetary characteristics.

For nearly 15 years, the relationship between gold and real returns on bonds was strong. They remained happy bedfellows from an investment perspective. Then something went awry and forced a breakup.  

Fed policy, and then investment and demand for gold as a monetary asset in the West, are still very much connected and we can really see that in the data.

This time round, as in 2013, the Fed has tried to normalise policy. They have started to reduce their balance sheet, i.e. implement quantitative easing. They have also significantly raised interest rates, which has put the opportunity cost up of holding gold.

And what have we seen? Physical ounces held in ETFs in the West fell significantly, some 25+ million from the peak.

In recent quarters, we have seen European demand for gold bars and coins fall significantly, particularly in Germany. And we have seen very moribund financial market sentiment for the gold market. These relationships have not suddenly disappeared. It is just that their impact on the gold price is lower because another source of demand has become so strong as to offset those negative selling pressures in the West.

Gold prices and real interest rates started to diverge as the Russia-Ukraine conflict arise

Real interest rates really started to accelerate higher in early 2022, and it was at that point that the paths of gold prices and real interest rates really started to diverge. With gold prices since that time having fluctuated between below US$1,800 an ounce to above US$2,000 an ounce, staying relatively high versus what real interest rates have done, the pivot point seems to have been the first quarter of 2022. That coincides with when the Russia-Ukraine conflict began.

The biggest delta on the gold demand side has been central bank demand, which is directly related to the Russia-Ukraine conflict and the West’s response to the situation.

Is demand just limited to central banks?

Besides central banks, demand for gold bars and coins has also been very strong in China and also in the Middle East, reaching clear record levels according to World Gold Council data.

If you compare 2013 or even earlier periods in terms of Chinese retail demand or public investment demand, there is a stark contrast. With capital lacking a home to go to, gold has been a beneficiary.

Important Information

The contents of this document may not be reproduced or distributed in any manner without prior permission.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.

Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.

This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.


James Luke
Fund Manager, Metals


Follow us

Contact Us

Level 33, Two Pacific Place, 88 Queensway, Hong Kong

(852) 2521 1633

Online enquiry: Please complete the web form below and we will reply as soon as possible.

Contact us

The investments mentioned in this website may not be suitable to all investors. The information contained in this website is provided for reference only and does not constitute any investment advice. Investors are advised to seek independent advice before making any investment decision.

Investment involves risk. Past performance is not indicative of future performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Please refer to the relevant offering document including the risk factors.

This website is intended for Hong Kong residents only. Non-Hong Kong residents are responsible for observing all applicable laws and regulations of their relevant jurisdictions before proceeding to access the information contained herein. Schroder Investment Management (Hong Kong) Limited is regulated by the SFC. The website (excluding Schroder Provident Plan related pages) has not been reviewed by the SFC.

The website is issued by Schroder Investment Management (Hong Kong) Limited.

Important notice: Schroders does not make unsolicited requests through emails, calls, messages, WhatsApp, WeChat, Facebook, Instagram applications. Any contact other than via Schroders’ official channels for personal or financial information is likely to be false and fraudulent. Please stay vigilant and refer to our Fraud Alert Notice for further details. If you have doubts about the person, platforms, websites or institutions that claim to be associated with Schroders, please contact us via (852) 2521 1633 and inform the local police.