The banking crisis sparked inflows, but gold's rally "has been about the dollar" - GraniteShares CEO Will Rhind
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(Kitco News) - The banking crisis was behind the recent surge in gold inflows, but de-dollarization is still the primary driver for gold prices, according to Will Rhind, CEO of ETF issuer GraniteShares.
"Absolutely, this has been about the dollar," he said. "This is not just about the technical aspect of the dollar's devaluation. I think it's more of a strategic conversation around de-dollarization and the role that gold will play in that."
Rhind spoke with Kitco News reporter Ernest Hoffman on April 18. He said people are now starting to realize that the dollar's decline may not be just temporary. "In that case, specifically for investors who use the U.S. dollar, they're looking to hedge themselves with gold."
He called the recent banking crisis that saw the collapse of Silicon Valley Bank and Signature Bank in the United States "a massive wake-up call to a lot of investors that perhaps thought that the economy was bumbling along, and maybe markets were stabilizing a little bit, but certainly didn't see a risk of this magnitude bubbling up from nowhere."
"That always focuses the mind whenever people are fearful of, in this case, a loss of their capital. That, to my mind, is the biggest reason why we've seen a big jump up in flows into gold."
Rhind said the decline of the U.S. dollar has remained the main driver of gold's steady gains in recent months. "We've been in this secular uptrend for gold since the dollar peaked last year,"
he said. "That, to me, has been the primary trend in terms of driving gold up to 2000 again."
Gold saw quite a run-up since its October-November lows, rising from $1600 to $2000 for a nearly 25% gain, while the S&P 500 traded mostly sideways during that time. Rhind said even then, and even with central banks making record purchases, it took a major scare to get U.S. funds into gold, which helped turn flows positive for the first time in 10 months.
"Clearly, people weren't as motivated by fear in the last six months that they perhaps have been in the last couple of weeks," he said. I think the downtrend of the dollar has had people focusing on other asset classes, and certainly, things like emerging markets have seen flows. It's not a huge part of an institutional investor's portfolio, and therefore they've been focused on capital allocation in other parts of the portfolio."
Rhind agreed that March could represent a watershed for gold on Wall Street, and could be the beginning of a sustained period of net buying from institutional investors.
"Absolutely, if we're talking about a sustained period of crisis, and people being worried about the health of the banking system, worried about the state of the real estate market," he said. "We can give all sorts of technical reasons as to why people should own gold, why people do own gold, but I think it comes back, ultimately always, to capital preservation and that fear of the return of capital itself. When you have a distrust or lack of trust in financial markets and the banking system itself, I think this is a role that gold plays and people will always look to have gold in their portfolio."
"For as long as this fear, this element of distrust persists, I think you'll have demand for gold."
He said the rising expectations of a recession could help fuel gold demand in the medium term. "The amount of commentators calling for an imminent recession, calling for a depression, I've never heard it so negative," he said. "I think that also feeds into the gold narrative, whereby if we do have a recession certainly at some point this year, I think that will just fuel that demand for gold similar to what we've seen in other recessions, mainly in 2008 and of course during COVID itself in 2020."
Rhind said he's fielding a lot more questions from clients who are worried about their own or customers' deposits at banks. "We suddenly get a lot of inquiries about people adding to gold, and a lot of people that haven't added gold at all are looking to do so for the first time," he said. "I expect that to continue over the next few weeks."
To hear Rhind's analysis of gold demand in Europe and the potential for a debt ceiling staredown to send gold to new highs, watch the above video.