Gold has been used for centuries as currency, in jewelry, and in other applications. The demand for the precious metal — coupled with its limited availability — has helped imbue it with value, according to Kevin DeMeritt, founder and chairman of Lear Capital.
Historically, gold’s price has remained fairly steady, and at times increased, even when other assets have experienced more unpredictability.
“You can only mine so much gold per year; that controls the supply,” Kevin DeMeritt says. “If you add an increase in demand onto that physical supply that’s fairly limited, usually what you’re going to find is prices go up; it’s economics 101.”
Past Gold Pricing
Because of its performance record, many financial experts and investors view gold as a safe-haven type of asset, according to Kevin DeMeritt.
“When investors are worried about the economy, usually you get more people turning to gold,” he says.
A Lear Capital analysis, for instance, found premium precious metal coins have retained value during all 15 of the recessions that have taken place in the U.S. since 1919.
The interest in gold can also increase during less pronounced economic downturns. In February 2022, after Russia invaded Ukraine, a number of international travel and leisure company stocks declined, according to U.S. News & World Report. Two days after the invasion’s onset, however, CNBC reported that “as investors piled into safe-haven assets,” gold was trading at its highest price level in more than a year.
“Gold has an inverse relationship to stocks and other types of assets,” Kevin DeMeritt says. “In times of war or terrorism, usually you’re going to find the markets become extremely volatile. Nobody knows what’s going on. Gold is typically going to give you more stability.”
Gold also tends to be less impacted by inflation than paper currency. Between April 1973 and October 1982, for example — the longest inflationary period in U.S. history — gold’s value actually increased, rising from $193.40 per ounce to $376 an ounce, according to National Mining Association records.
“Each year that goes by, if I’m losing [a percentage] of the value of my paper money purchasing power, I need something to offset that,” Kevin DeMeritt says. “Gold is going to be a great alternative. Gold and silver have historically performed very well in times of inflation.”
Banks’ Buying Preferences
Gold’s track record of retaining value has led investors — ranging from individuals to institutional entities — to include it in their portfolio, where it can potentially help offset losses that other assets, such as stocks and bonds, experience.
Central banks, for instance, have increasingly made gold a key part of their reserves, according to the World Gold Council. Since the 2008 financial crisis, banks in emerging markets have increased their gold purchasing, and European banks have sold less of the precious metal.
In an appearance on the Redacted news show — hosted by former Fox news anchor Clayton Morris — which Lear Capital shared on its YouTube channel in December, Kevin DeMeritt said central banks’ gold purchasing habits indicate “a huge shift from selling precious metals 10 years ago to accumulating them now.”
Between 2009 and 2018, according to the Official Monetary and Financial Institutions Forum, central banks added roughly 4,000 tons of gold to their reserves.
The banks’ appetite for physical gold has, in some years, been considerable. In 2022, for instance, central bank gold demand increased by 152% from the previous year, reaching a record level. Central banks’ gold purchasing totaled more than 1,000 tons per year in both 2022 and 2023, comprising nearly a quarter of the overall annual gold demand both years.
In the first quarter of 2024, the central bank-related demand for gold reached 290 tons, which the World Gold Council said marked the strongest start to any year on record.
“Central banks purchased a quarter of all the mining supply in 2022, which is just absolutely a huge jump from [what they were purchasing — [and] they’ve continued to buy,” Kevin DeMeritt says. “It makes sense; they need something that’s physical and worth value. They get to hold gold, and that’s going to offset some of the inflation pressure.”
What’s Next for Gold
Recent research indicates central banks intend to keep adding to their gold reserves.
Nearly 30% say they plan to add to their gold reserves within the next year; and more than 8 in 10 expect reserve managers will continue to increase their gold holdings in the next 12 months, according to a recent World Gold Council survey that involved 70 central banks.
Citing additional factors such as gold’s ability to help mitigate risk and a need to prepare for further political and economic uncertainty, central bank reserve managers’ top two reasons for holding gold are its long-term value (88%) and performance during a crisis (82%).
More than two-thirds (71%) of reserve managers say they also continue to view gold’s legacy as a reason to hold it.
A recent Bank of America survey found numerous high-net-worth U.S. consumers — including younger investors — have also shown an appreciation for gold.
Approximately 18% of wealthy investors already own physical gold assets; another 23% say they’re interested in obtaining gold. Among high-net-worth investors aged 21 to 43, 45% own gold, and an additional 45% say they’d possibly like to purchase the precious metal.
Given gold’s more than 5,000-year performance history, the demand for it isn’t too surprising, Kevin DeMeritt says.
“No one has a crystal ball, so I can’t tell you when the stock market or home values are going to fall,” the Lear Capital founder says. “But it can have a devastating effect. [Having] a hedge on the other side will help you in those dark days.”
