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Millennials, often scapegoated for the decline of cable television, landline phones, and department stores, are now fueling a surprising revival in an ancient industry: gold. Yes, the yellow metal that dates back to ancient Egypt is experiencing a significant bounce, with millennials holding the largest allocation to gold in their investment portfolios.
When compared to other generations, millennials allocate an average of 17% of their portfolios to gold, according to State Street data from 2023. This is a stark contrast to the 10% held by baby boomers. The question arises: What's behind this sudden interest in gold? And why is Costco, of all places, struggling to keep small gold bars on store shelves?
Financial advisors often suggest that gold serves as a hedge against inflation and economic downturns. It performs well during tough economic times, preserving the value of your money while other assets may falter. But is gold a better investment than the benchmark S&P 500 index?
A year-long comparison of spot gold prices against the S&P 500 index reveals an interesting trend. While the stock market has outperformed gold in terms of long-term returns, the gap has narrowed in recent weeks, with gold prices pulling away from the stock market. Despite the economy performing well, with wage growth up and a strong job market, interest in gold as an investment class has surged since the 2008 financial crisis.
Gallup polls from May 2024 show that while stocks and mutual funds are still the preferred long-term investments, gold is not far behind. In fact, in 2023, gold's perception as a good investment was higher than all other asset classes except real estate.
The younger generation sees gold as a trending asset, one that's performing well and worth getting involved in. They understand that when an asset reaches a new high, it signals a change, a new trend. The underlying fundamentals support this perspective, making gold an attractive option for them.
The interest in gold has become so intense that wholesale giant Costco began selling 24 karat gold bars in its stores. These one-ounce bars have been flying off the shelves, with Wells Fargo estimating that Costco was making between $100 and $200 million per month from their sale.
The future of gold prices, both in the commodities market and on Costco's checkout aisles, is closely tied to the actions of the US Federal Reserve. Gold prices received a significant boost when the latest inflation data was released, giving investors hope that the Fed would soon cut rates. Historically, gold prices rise when rates go lower.
While the current trend in gold prices may seem promising, it's essential to remember that finance doesn't work on a straight line. Just because something is soaring now doesn't mean it will always soar. As investors, we must remain vigilant and diverse in our approach to ensure long-term financial stability.
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