Gold breaks past inflation-adjusted 1980 high in 2024; silver lags below 2011 peak: DSP Mutual Fund

Gold prices achieved a historic milestone in 2024, surpassing their inflation-adjusted peak from 1980, marking a new all-time high in real terms, according to a report by DSP Mutual Fund. While gold has firmly entered a bull market, silver continues to trail behind, yet to revisit its inflation-adjusted highs from 2011.

“Gold has made a new lifetime high in inflation-adjusted terms in 2024 and is firmly in a bull market. Silver, however, has yet to reach its inflation-adjusted peak from 2011, and remains significantly lower than that peak,” the report read.

The below visual representation shows gold breaching the inflation-adjusted mark of 807 USD/oz from January 1980, while silver remains well below the inflation-adjusted equivalent of 46 USD/oz hit in 2011.

(Source: DSP Mutual Fund)DSP Mutual Fund attributes this surge in gold prices to a growing realisation among U.S. policymakers about the need to address structural deficits.
The report states, “There is also growing recognition that the U.S. needs to address its debt problem by borrowing less, although concrete action remains lacking.”
It also points out that U.S. trade and fiscal imbalances are forcing policymakers to reconsider the dollar’s role in global trade. The tariff wars and rising geopolitical uncertainties are contributing to a weaker U.S. dollar, which in turn has benefited gold.
Another factor contributing to the demand for gold, according to the report, is the ongoing deleveraging cycle, particularly in China. DSP notes that historically, when a large debtor nation (currently the U.S.) attempts to deleverage, a major creditor (such as China) offsets it by leveraging up.

However, this time, both nations are simultaneously undergoing deleveraging, raising broader concerns about global growth and a potential currency debasement scenario. “This raises serious concerns about global growth, with one likely outcome being a broad currency debasement (possibly, already underway),” DSP writes.

One of the trends highlighted in the report is the aggressive accumulation of gold by central banks.

Between 2000 and 2016, central banks bought $85 billion worth of gold. However, in a single year—2024 alone—central banks purchased gold worth $84 billion. Since 2022, they have consistently bought over 1,000 tonnes of gold each year, accounting for more than a fourth of the annual mining supply.

“Central Banks have bought nearly 1,000 tonnes of Gold each year, which is more than a fourth of the annual mining supply,” the report points out, attributing the move to a growing preference among countries to diversify away from the U.S. dollar in their reserve portfolios.

The report also underlines the limited alternatives to the U.S. dollar, stating, “The alternatives to USD are scarce. The euro has repeatedly shown vulnerabilities… The Chinese Yuan is far from market-driven or politically palatable… and most other competitors are now too small to attract reserve asset purchases.”

Data presented by DSP shows that gold’s share in global foreign exchange reserves has been steadily rising. The share of the U.S. dollar in global official reserves has fallen to 46% in 2023, while gold at market price now makes up 20%, a significant jump from previous years.

This trend marks what the report calls a phase of “Re-Goldization”, as countries move away from fiat currencies and reallocate reserves into physical gold.

Alongside this, central banks’ official reserve holdings in gold as a share of above-ground stock have also increased from 17% to higher levels post the global financial crisis. Meanwhile, real gold prices have rallied in tandem.

DSP’s report also links the surge in gold buying to geopolitical risks, notably the use of the U.S. dollar as a sanctions tool. “US attempt to use USD as a tool for sanctions has sparked a global rush for gold,” it notes, pointing to a visible spike in gold prices post the February 2022 invasion of Ukraine.

The inverse relationship between U.S. real yields and gold prices continues to play out, as investors seek refuge in gold amid uncertainty surrounding Treasury bonds and declining faith in fiat currencies.

The report concludes by addressing the valuation framework for precious metals. “Gold and Silver do not have a common intrinsic value yardstick. Therefore, in bull markets, it is logical to let the allocation continue until the trend continues on the upside without calling for market tops,” it states.

According to DSP Mutual Fund, while valuations should eventually be assessed against intrinsic metrics, “we are far from it yet, especially for silver.”

Silver, despite modest gains, remains significantly below its inflation-adjusted peak from 2011, when it touched an equivalent of $46/oz. As of 2024, it continues to lag gold’s momentum, highlighting a divergence between the two metals.

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