Gold Buying Opportunity

June 11, 2024

Pause in Gold Surge a Signal to Buy

Gold prices faced headwinds as hopes for a near term cut in interest rates declined. Prices also stalled with a pause in China’s central bank purchasing. Forecasters predict that gold’s upward trajectory will resume based on numerous factors, making this an opportune time to protect retirement funds with physical precious metals.

The gold market has been seeing some liquidation as investors and institutions seek to capitalize on record prices. Yet, there are other forces pushing against gold.

A stronger than expected US jobs report squashed expectations for interest rate cuts this year. The Fed may see those numbers as a sign that the economy isn’t slowing down fast enough. Instead, rates would need to be kept higher for longer to reach their 2% inflation goal. Higher rates increase the opportunity cost of holding non-yielding bullion and push gold prices down. The data also drove a rally in the dollar. This made gold more expensive for overseas buyers.

Gold lost momentum when China announced their central bank paused its gold purchases after 18 straight months of net buying. Prior to this, China had been on a record gold buying spree.

Why the Upswing Will Resume

Heraeus Precious Metals think the passing dip in gold could be part of a larger sell off that impacted all base metals. They said, “The longer-term trend for gold appears to be higher, but the price is still correcting its recent sharp rally. For now, the price is holding above previous support from $2,280/oz to $2,300/oz. Below that level the next price support could be around $2,200/oz.”¹

China’s purchasing pause is most likely temporary. TD Securities said, “the pause in purchasing could just be a hint of a return to a more price sensitive operation given the run up in prices.” In other words, China is selling high and waiting to buy lower. Analysts think China is relying on gold to strengthen their move away from the dollar and secure their economy from potential sanctions. ²

A lack of supply is also likely to support higher gold prices. The gold mining industry is struggling to sustain production. Deposits of gold are becoming harder to find according to the World Gold Council. Gold production logged its first decline in a decade.

“It’s getting harder to find gold, permit it, finance it, and operate it,” said World Gold Council’s John Reade. Aside from the discovery process, government permits are getting harder to secure. In addition, infrastructure to reach remote gold veins needs to be built and paid for. This scarcity in the face of growing demand is most likely going to drive up gold. ³

Interest rates will, eventually, come down. With recession looming, Canada and the European Union have begun cutting their interest rates. The Fed has maintained that cuts won’t happen until they have hard evidence inflation is approaching their 2% goal. However, the CME Fedwatch Tool predicts that there is a 55% chance of rates dropping by 50 bps this year. A cut of that size would be a boon to gold.

Meanwhile, the crisis conditions that sent investors seeking safe havens persist. Geopolitical conflict is still raging in Eastern Europe, the Middle East, and the South China Sea. Even the Presidential election is raising uncertainty levels. Especially as the debt of the world’s richest nation is spiraling into uncontrollable proportions. And as we enter a state of near permanent inflation, the demand for a hedge against it will continue to rise. In addition, the BRICS+ alliance continues buying gold at a record clip in their efforts to dethrone the dollar and launch their own currency.

Conclusion

In times of catastrophe, gold is a known safe haven. Since 1990, gold has gone from $386 an ounce to a record $2,450 in 2024. During the financial crisis of 2008, gold rose as stocks dropped 38%. And when COVID struck, the S&P 500 index fell 34% over 5 weeks as gold held nearly all its value. ⁴

Most analysts have a gold price forecast for 2025 of well over $3,000 an ounce. ‘Rich Dad, Poor Dad’ author Richard Kiyosaki has a gold price forecast of $5,000 in the next few years. Long term projections have gold breaking $8,000 an ounce by 2029. ⁵

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This pause in gold’s climb presents a buying opportunity. With so many events able to send gold higher at a moment’s notice, now is great time to learn how physical precious metals can protect the value of your retirement funds, especially if they are in a Gold IRA. Contact American Hartford Gold today at 800-461-0071 to learn more.