Do not discount the old proven gold, yet | Forexlive
Notwithstanding
the high levels of uncertainty in the global economy and the rise in
geopolitical tensions, February was a lousy month for the precious metal
market. For the past 4 weeks, gold prices dipped by as much as 5%, whereas
silver, platinum, and palladium plunged by 11%, 5%, and 13% respectively.
Analysts
highlight two main reasons for a weak performance: the fact that inflationary
pressures have proven to be more persistent than expected and a fear of further
rate hikes by the U.S. central bank. It’s worth mentioning that there have
already been calls to raise the Federal Funds rate above 6% – something that
investors can keep track of as well as other economic events with the economic
calendar.
On the
positive side, for the very same reason, gold could still gain its upward mojo.
With both the US and Europe far from price stability, monetary policy could
remain tight “for some time”. As regulators continue to raise
interest rates and the money supply shrinks, the economy loses momentum.
As a
result, consumer activity falls, consecutively deteriorating the outlook for
the corporate sector. In fact, the first signs of a turnaround are already
here: two retail giants, Walmart, and Home Depot presented a subdued outlook
for this fiscal year. More to come…
The fall
in the US consumer confidence index in February to
102.9 from 106.0 in January does not add to the optimism either. If things do
not improve, markets could face further waves of risk-off. In other words, more
investors will opt to reallocate their portfolios away from risky assets to
safe-haven assets, including gold.
Finally,
yet importantly, rising geopolitical uncertainty could also affect risk aversion. The threat of sanctions and a
general distrust already led to central banks buying 1,136 tonnes of gold in
2022, a 55-year high. Judging by the rhetoric of US officials and political
commentators toward China, the trend will continue.
In
summary, there are compelling reasons to believe that interest in gold could be
more pronounced in H2 under conditions of global political and financial
instability. The fragmentation of the global capital market and weak quarterly
figures could prompt investors to flock to safe-haven assets.
Author
of “Rich Dad, Poor Dad” Robert Kiyosaki, in this sense, predicted the
growth of gold prices to $5,000 per troy ounce by 2025. He believes the Fed
will be forced to print billions of new dollars, which will lead to a loss of
confidence in the American currency and the growing popularity of gold, silver,
and even bitcoin.