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Investing in gold is a long-term play

Kitco News

(Kitco News) - Headwinds blowing in the gold market continue to strengthen as bond yields rise in anticipation that the Federal Reserve will have to maintain its aggressive monetary policy.

There is no doubt that this is a challenging environment for gold right now and prices have room to move lower; however, many analysts have noted that nothing has changed to shift gold's long-term bullish potential.

To put's gold's price action into perspective, we have to take a closer look at the bond market. Yes, bond yields are rising again as persistently higher inflation could force the Federal Reserve to push interest rates to 5.50% in the next few months.

What makes it even more challenging for gold is that short-term bonds offer investors positive returns, making them attractive safe-haven assets again. However, there is where the trouble lies.

The U.S. bond market is seeing the biggest inverted yield curve in 40 years. The U.S. economy has been more resilient than expected, but that doesn't mean the threat of a global downturn has abated. Some economists have said that it is not a question of if a recession hits but a question of when.

This past week we saw January inflation data come in hotter than expected, with the U.S. Consumer Price Index rising 6.4% for the year. Economists were looking for a 6.2% rise. Meanwhile, the U.S. Producer Price Index rose 6% on an annual basis versus an expected 5.4% increase.

Because of the latest inflation data, markets now see potential for the Federal Reserve to raise interest rates by 50 basis points next month. This shift in interest rates is a negative for gold in the near term; however, analysts have noted that the more the Federal Reserve cuts rates, the bigger the recession threat.

Gold prices to push back above $1,900; its only a matter of time before a recession hits - Haywood Securities

Recently, billionaire investor John Paulson, founder of Paulson & Co., noted gold's long-term potential. He said investors should follow the path created by Central Banks, which bought a record amount of gold last year.

“There has been a significant increase in demand from central banks to replace dollars with gold, and we're just at the beginning of that trend. Gold will go up and the dollar will go down, so you'd be better off keeping your investment reserves in gold at this point," Paulson told journalist Alain Elkann in an interview.

Meanwhile, Rich Dad Poor Dad author Robert Kiyosaki posted another warning of an impending global recession on Twitter, saying that now is the time to buy gold, silver and bitcoin.

“By 2025, gold at $5,000, silver at $500 and Bitcoin at $500,000. Why? Because faith in US dollar, fake money, will be destroyed,” he said in Monday's tweet.

With an eye on the horizon, have a great Family Day long weekend in Canada and a Presidents Day long weekend in the U.S.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.