Will Gold and Silver Perform Strongly in 2024?

The global unrest over the past three years has seen upward pressure on the price of gold as countries stockpile this precious metal and investors seek refuge in it as a store of value. While this is positive, capital is now flowing into the stock market, which can hurt the price of gold. Given this, I expect some short to medium-term weakness before it continues its run-up.

What factors influence the price of gold and silver?

During times of high inflation, gold shines as investors hedge against the eroding value of paper currencies. While we have seen this in the past few years, inflation now looks like it is easing globally. As mentioned last week, falling inflation leads to lower interest rates and higher consumer sentiment, which is good for the stock market. During periods of low inflation, the demand for gold slows, so gold generally negatively correlates to stocks and riskier-type assets. That said, when interest rates fall too low, gold shines again, becoming more attractive than other interest-yielding assets.

While silver shares some similarities with gold, there are certain differences in how it reacts. Like gold, silver can experience a negative correlation with strong stock market performance. However, unlike gold, a significant portion of the demand for silver comes from industrial applications, such as electronics, solar panels, medical equipment, and various industrial processes. As such, silver tends to be more volatile than gold due to its dual role as a precious metal. This means during periods of low inflation, demand for silver can increase due to its industrial applications. So, what does this mean for investors?

Given the continuing global unrest, I expect upward pressure on the price of gold to continue as countries stockpile this precious metal as a hedge against uncertainty. However, given the increased capital flowing into the stock market, there will be some short to medium-term weakness in the price of gold before it continues its run-up. Silver may also have some downward pressure in the short to medium term if industrial demand slows due to sluggish growth in global economies.

Many factors influence the price of precious metals, with some contradicting others. While it is wise to consider these, I wouldn’t base your buying decisions solely on these. I strongly recommend analysing a chart of both commodities as this will tell you a lot more about where price is heading and, in my opinion, now is a perfect time as I can see many opportunities coming from this space in the future.

What were the best and worst-performing sectors last week?

The best-performing sectors included Information Technology, up 2.85 per cent followed by Consumer Discretionary, up 1.15 per cent and Financials, up 0.46 per cent. The worst-performing sectors included Materials, down 3.72 per cent, followed by Real Estate, down 2.76 per cent and Utilities, down 2.51 per cent.

The best-performing stocks in the ASX top 100 included the Lottery Corporation, up 7.17 per cent followed by Aristocrat Leisure, up 5.24 per cent and Xero, up 4.99 per cent. The worst-performing stocks included Evolution Mining, down 17.45 per cent, followed by IGO, down 10.67 per cent and Bellevue Gold, down 10.03 per cent.

What's next for the Australian stock market?

As we work through the midpoint of January, the market has finally decided to enjoy the summer sunshine and take a breather. As I mentioned in my previous report, given the market's stellar finish in 2023, any reactive downward move in early 2024 is well justified.

At one point last week, the All-Ordinaries Index was down over four per cent so far this year; however, before you push the panic button, it’s important to remember that this recent correction has fallen less than half of December’s gains. If we do not experience further falls this month, which I expect, this is good news, as it provides insights into how the market will unfold moving forward.

That said, I believe we are seeing the last of the down move, and I expect it will turn to rise, if not this week, then very soon. If I am correct, then expect the bullishness to continue for the next four to six weeks and for the market to move past its all-time high.

What is interesting right now is that reporting season is just around the corner, and with the Banks posting record profits recently, I anticipate that many stocks in our market will also perform during the silly season, and there will be some fantastic opportunities.

Given this, I suspect that late January may be a catalyst for buyers to step back into the market in anticipation of a positive reporting period. As such, I believe now is the perfect time for investors to revisit their portfolios. While I like Financials, Materials and Energy, IT is also a sector where you may find some hidden gems.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.