Here’s what could lead to a permanent rise in gold prices

Gold has failed to show its value as an investment haven so far this year, with prices hitting their lowest settlement since the spring of 2021. A major index that tracks the performance of gold mining stocks fell to its lowest level in more than two years.

However, it may be safe to bet that the metal will prove once again how precious it is to investors – under the right conditions.

Higher interest rates and a stronger dollar contributed to gold dropping to $1,700.20 an ounce on July 20, the lowest close since March 30, 2021, while the NYSE Arca Gold Miners recently fell to 701.80 on the day, the weakest level since April 2020.

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He’s spent the past two years stuck in a trading range, with the $1,600 upper bound at the lower end and extreme resistance just under $2,000 and above — and it’s likely a range the market will continue to see as the year ends, says Peter Spina, president of GoldSeek.com .

However, signaling that the US Federal Reserve is nearing the end of its rate hike would trigger a significant gold price response, he says, which could push prices toward the upper end of their trading range or higher.

Hot US inflation numbers have raised fears of higher interest rates, raising the risk of a recession. The US inflation reading for June showed a rise to nearly 41 years at 9.1%, supporting expectations for a further rate hike by the Federal Reserve.

Investors have historically used gold to offset losses from inflation, but central bank hikes in interest rates and the strength of the US dollar have managed to weaken the metal’s allure.

Paul Wong, market strategist at Sprott Asset Management, notes that the concept of gold as an inflation hedge arose nearly 50 years ago in a market that is “almost completely different from the current market.”

Read: Surprise! Inflation hedges like real estate, gold and TIPS ‘not working as expected’

In the 1970s, the Swiss franc and gold became “the dominant recipients of safe haven flows,” he said. Today, the policies of the Federal Reserve and other central banks have become the main driver of market expectations as they control the levers of liquidity. The Federal Reserve announced a 75 basis point rate increase in June – the largest since 1994 – in an effort to combat inflation.

“Fears of simultaneous inflation and stagnation began to take shape towards the end of the first quarter and have increased since then,” says Wong, so gold has struggled under either of the two short-term scenarios. However, “selling flows far outweigh any inflation or stagnation message on gold.”

There is an old saying that bear markets rarely end with a yawn and a jump. In other words, it may be too early to write off the gold.”


– Paul Wong, Sprott Asset Management

Wong warns of further declines in the short term, with a rally possible after that. He says gold prices may “temporarily drop to levels that may surprise us”. But “there is a saying that bear markets rarely end with a yawn and a shrug. In other words, gold may be written off too soon.”

At the moment, there is no sign of a major shift. Gold prices are down about 6% this month, contributing to a 7% annual loss.

However, if the debt markets can no longer handle higher interest rates, the Fed will be forced to slow down and stop raising rates, calming the dollar and “Western gold investors will start adding to their positions,” GoldSeek said. Spina Kom says.

If gold prices reach their lowest levels, this may present an opportunity in gold mining stocks, Spina says. VanEck Gold Miners GDX Exchange Traded Fund
It has lost more than 20% this year. Spina says gold miners are trading as if the gold was under $1,500.

He says the entire gold mining sector has been “devastated”. “As long as the price of gold is flat here and starts to rise again, gold stocks will experience a significant reversal rally.”

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