CNA Explains: Why did gold and global markets hit all-time highs at the same time?

Should retail investors wade in or look elsewhere?

When asked if it is “too late” for retail investors who have no or limited holdings in precious metals and stocks to add top-tier assets to their portfolios, DBS’ Chief Investment Office said: “Time in the market beats timing the markets. Instead of trying to catch the peak or the bottom, investors would do well to maintain a disciplined approach to investing.

“We emphasise the importance of putting cash to work through a well-diversified portfolio that employs our ‘barbell’ strategy, comprising exposures to income-generating bonds on one end and quality-growth equities on the other.

“In a world characterised by economic and geopolitical uncertainties, it will provide a solid foundation to generate appropriate returns through economic cycles.”

Mr Menon said that, overall, OCBC remains “constructive about the investment outlook for 2024, assuming US core inflation falls and the US economy avoids a hard landing as the US central bank cuts rates”.

“If this scenario plays out, it could offer fodder for cash-rich investors to get back into markets in a bigger way, which could fuel a multi-year rally as we saw in the 1980s, when the Fed eventually won the battle over inflation and reduced rates,” he said.

“With close to US$6 trillion sitting idle in US money market funds, there is clearly an abundance of liquidity that can offer stock markets with firepower in 2024 and perhaps beyond.”

However, Mr Menon said that “it would still be prudent for investors not to get over-exuberant about the outlook and jump headlong into stock markets now”.

“It makes sense to stay invested, but it is also important to be cognizant of risks,” he said.

“Perhaps time diversification may be a good strategy to adopt for 2024, whereby fresh investments are made gradually over several months instead of investors trying to time the markets.

“As an added measure of risk management, be sure to keep a diversified portfolio of equities and bonds to avoid concentration risk.”

Analysts also agreed that gold prices have not peaked yet.

Mr Gregerson said that even though gold has been hitting new highs of late, it “has a lot further to go as a hedge against inflation and currency crises, and if held for the long term is a prudent form of savings”.

“Since 1970, gold’s average annual appreciation in USD terms has been around 7.8 per cent per year. We believe that over the next decade, gold (will) exceed this yearly return,” he added.

Mr Heng of UOB said that the bank maintains its “positive outlook for gold” and has forecast that it will reach a price of US$2,300 an ounce by the first quarter of 2025. This is up from the US$2,200 per ounce by the fourth quarter of 2024 he forecast in December last year.

“Once the US dollar and interest rates both start to drop more meaningfully in the second half of the year as the US Federal Reserve starts its rate cuts, gold will be propelled even higher,” he said.

“We reiterate our long-term view that gold is a good portfolio diversifier of risk and has embarked on a sustained rally above US$2,000 (an ounce).”

That figure of US$2,300 is also OCBC’s 12-month target for gold, according to Mr Menon.

For investors looking for an alternative to gold in the precious metal space, silver is an option, said Mr Gregersen.

“Based on the gold-silver ratio, which measures the relative price of these two metals, silver is currently highly undervalued, being 89 times cheaper than gold, and should be considered as a good alternative to gold,” he said.

“Silver is also a critical metal for solar panel production, representing around 10 per cent of solar panel production costs. We believe that silver’s increasing scarcity –  2022 saw a global 23 per cent supply deficit – and green energy roles are not yet fully appreciated by the markets.”