(Kitco News) - Gold's rally above $4,200 signals more than a shift in inflation expectations or global monetary policy; it reflects growing investor doubts that policymakers can keep the global economy on stable footing, according to one market strategist.
In an interview with Kitco News, Michele Schneider, Chief Market Strategist at MarketGauge, reiterated her long-term bullish outlook for gold as prices have moved solidly back above their 50-day moving average. However, she added that investors should keep an eye on silver, as the metal has lagged but could ultimately deliver stronger gains if persistent inflation pressures begin to re-emerge and confidence in governments and central banks continues to erode.
Schneider added that while the force behind gold's 4% rally Wednesday was surprising, the move was not unexpected, as the price has been consolidating around $4,000 an ounce for the last two months.
"I would say that is definitely a move I was expecting to see because a lot of the fundamental picture on gold really hasn't changed very much," Schneider said. She pointed to continued central bank purchases, including sustained buying from China and new accumulation by South Korea, alongside rising global debt levels as key factors supporting the precious metal.
Although prices have backed from it session highs above $4,300, Schneider said that the market is still holding new support. Spot gold last traded at $4,244 an ounce, roughly unchanged on the day.
Schneider explained she began building a position in gold in mid-July after the metal successfully held technical support near its June lows. Along with her technical analysis, Schneider said that the broader macro backdrop never stopped favoring the precious metal. The Federal Reserve's decision to leave interest rates unchanged provided another catalyst, weakening the U.S. dollar and reinforcing her bullish outlook.
However, Schneider said the real spark that ignited gold's powerful breakout came from Japan's currency intervention.
"The story came out about the U.S. buying yen to promote it and the economy... and I thought, 'Oh my God, this is all that we really need to get this gold market up,'" she said, noting that the rally unfolded almost exactly as she anticipated.
She argued that the intervention did more than weaken the dollar—it raised broader questions about the stability of the global financial system.
Schneider said the move reinforced a growing perception that governments are increasingly forced to intervene to support financial markets, undermining confidence that policymakers have the situation under control. She added that investors eventually gravitate toward gold whenever trust in institutions begins to deteriorate.
"I think once the confidence shifts... it won't matter what the rates are doing," she said. "If there’s a lack of confidence, people will buy gold. They always have, and they always will."
Although Schneider remains constructive on gold, she believes silver could become the better opportunity if inflation pressures broaden.
She said that her "inflation trifecta"—the gold-to-silver ratio, the U.S. dollar, and sugar prices—is starting to highlight renewed inflation pressures.
"If the gold-silver ratio breaks down under 69 and silver starts to outperform again, that is inflationary, then I would probably look to buy back silver," she said. "I'm very bullish for gold, but even more bullish for silver."
From a technical perspective, Schneider said silver still has one hurdle to clear before she becomes more aggressive. Unlike gold, silver has yet to reclaim its 50-day moving average. However, she said a move above roughly $64 an ounce in the September futures contract would complete a bullish base and could trigger a rapid advance toward $75, with the potential to reach $80.
Schneider also warned investors not to become overly focused on traditional macroeconomic relationships such as interest rates and real yields. While many analysts explain gold through economic models, she believes the precious metal is ultimately driven by investor psychology.
"They are emotional plays," she said of precious metals. "The biggest thing that we could see flip... is confidence."
She added that volatility across financial markets, uncertainty surrounding government policy, and growing questions about the durability of economic growth are all contributing to a shift in sentiment.
"If markets are moving with that much volatility based on a headline, it just shows you how uncertain investors have become," Schneider said. "This volatility is already the breakdown of the perception... Nobody knows what officials are doing. Nobody knows what to believe. Let's just sell the market. But there’s one thing we know that everybody's buying and we can go anywhere with is gold."
