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(Kitco News) - If you have any questions about where gold is going, you must first look at where it has been.
Despite everything that is being thrown at the market—the U.S. dollar index holding above 100 points, the S&P 500 rallying out of bear market territory, two-year bond yields above 4.5% and money market funds above 5%—gold continues to hold onto firm support within a solid, bullish trend line.
Some analysts have said that in the current market conditions, gold prices should be significantly lower, trading in at the $1,800 level. Instead, the market is less than 6% away from hitting a new all-time high. So what makes this environment so different? We have noted this several times in the last seven months: central bank gold demand has fundamentally changed the marketplace dynamic. Because of their insatiable appetite, central banks are not only net buyers of gold but record buyers. This demand is not going anywhere anytime soon.
We just have to look at the People's Bank of China, which reported this week that they bought roughly 16 tonnes of gold last month. This is the seventh consecutive month China's central bank has bought gold. Since November, it has increased its gold reserves by 144 tonnes.
China isn't buying alone; analysts at JPMorgan note that gold's role in foreign reserves is further proof of the ongoing global de-dollarization trend. The biggest winner appears to be gold. In the report, the analysts said the U.S. dollar's share in global FX reserves has fallen to a record low of 58%. At the same time, gold now accounts for 15% of global reserves, up from 11% five years ago.
The U.S. dollar's role as the world's reserve currency remains solid; however, some investors are starting to take notice of gold's stoic performance. This week, the world's largest asset management firm recommended that investors consider a tactical allocation to gold.
Meanwhile, in his latest webinar, DoubleLine Capital CEO and billionaire bond investor Jeffrey Gundlach said that he likes gold as “real money” as the U.S. economy pushes closer to a recession.
"I like gold just because it is real money," Gundlach said. "But I don't like commodities. I haven't liked them for a year just because the economy is weakening, and we are probably heading into a recession sooner rather than later, and commodity prices won't go up during a recession."
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| Run away from AAPL, NVDA and the entire tech sector as fast as you can and start buying gold - The High-Tech Strategist's Fred Hickey |
Of course, while gold is seeing new interest, the market remains at the mercy of the Federal Reserve. Many analysts have said that gold's true potential will be unleashed when the Federal Reserve has unequivocally halted its tightening cycle.
The central bank meets next week and while they are expected to leave interest rates unchanged, it will also maintain its hawkish bias.
However, in an interview with Kitco News, Fred Hickey, creator of The High-Tech Strategist investment newsletter, said that the economy has been in a recession since last year and the current equity market uptrend is a classic bear market rally.
He added that it's only a matter of time before gold hits record highs as equities see a sharp correction.
"We are going to blast through record highs and I think it will happen a lot sooner than some people think," he said. "It's not going to take much longer before people realize that the economy is at the breaking point."
For now, investors just have to sit back and wait; yes, gold prices can still go down, but for many, any correction is seen as a buying opportunity.
That is it for now. Have a great weekend.
