 | Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here! |
(Kitco News) - For gold investors, there are many worse places to be than being stuck in neutral at $2,000 an ounce.
Gold prices may be going nowhere in a hurry as stubborn inflation appears to be forcing the Federal Reserve to continue raising interest rates and potentially maintaining aggressive policies for longer than expected; however, compared to where gold has been, the precious metal continues to perform exceptionally well.
Yet despite this environment, the gold market has a vice-grip on $2,000 an ounce as investors prepare to close the book on April. At $1,997 an ounce, the precious metal has eked out another all-time high monthly close. Quickly, I want to point out that prices are well above a post-pandemic three-year average of roughly $1,807.65 an ounce. At the same time, gold is miles above the five-year pre-pandemic average of around $1,267.57 an ounce.
Although gold’s upside momentum has stalled for the moment as the market is caught in a tug-of-war between inflation and recession risks, there are signs that this is just a short-term consolidation. This week Kitco’s Anna Golubova noted that Google searches for “how to buy gold" hit a record level this month as prices push to their highest level in 13 months.
She noted that the last time interest was this widespread in the U.S. was in August 2011, when prices hit their initial all-time high above $1,900 an ounce.
It’s not surprising that gold is once again entering the collective zeitgeist as consumers face significant economic uncertainty. The latest data from both the U.S. and Europe show that higher inflation is becoming embedded into the broader economy. Central banks can only fight this type of inflation by slowing down the economy.
While interest rates continue increasing, each move pushes the global economy one step closer to a recession. This is why gold is stuck. Higher interest rates make gold unattractive because investors can find better value in short-term money markets; however, the threat of economic turmoil means that investors are in no hurry to get rid of an essential store of value. Let’s also not forget even with higher interest rates, there is no guarantee that the Fed can bring inflation back down to its 2% target.
According to many analysts, the gold market is content to consolidate at these elevated levels, waiting for when the Federal Reserve will be forced to end its tightening cycle. In a recent interview with Kitco News, Joy Yang, global head of index product management at MarketVector Indexes, said that investors are only starting to see the fragility of financial markets as the Federal Reserve aggressively tightens interest rates after years of pumping unprecedented liquidity into markets during the global pandemic.
"This shift from easing to aggressive tightening comes with tighter credit issues and will become a new macro driver for gold prices. Investors are starting to understand that if the Fed keeps increasing rates, there may be wider economic contagion. So, there's still a lot of safe-haven support for gold," she said.
|
| World Bank sees gold prices outperforming broader commodity sector as economic growth weighs on demand |
But it's not just investors looking to protect themselves. Central bank gold demand continues to dominate the gold market as nations look to diversify away from the U.S. dollar.
Rockefeller International chairman Ruchir Sharma, in a commentary published in the Financial Times over the weekend, said that central bank demand has helped push gold prices 50% higher compared to models based on real interest rates would suggest.
"The oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar. Often in the past, both the dollar and gold have been seen as havens, but now gold is seen as much safer," Sharma said in his commentary.
Finally, in another sign of the precious metal popularity, Northern California, on the western slopes of the Sierra Nevada, is preparing for a new Gold Rush 2.0, 175 years after the first gold fever broke out in 1848. Years of wildfires have significantly destabilized the region’s ground cover, and after record snowfalls, the melting snowpack is sending massive amounts of dirt and boulders down rivers, streams and creeks. In all that debris is the stuff dreams are made of: gold.
According to a growing number of amateur miners, the best time to start your placer mining operations will be in June and July when the water levels recede, making the sandbanks and sandbars more accessible.
That’s it for this week, have a great weekend.
