Gold Prices Rise on New Data
Up more than $80, gold is having the best weekly performance since July 2020 – when it hit a record high of above $2,000. All eyes are now on gold as inflation eased slightly and crypto is melting down. Gold rose on the hopes that the Fed might pivot on interest rate hikes. This possibility sent the US dollar lower. And a lower dollar translates into higher gold prices.1
“U.S. consumer prices rose much less sharply than expected in October, thereby dampening Fed rate hike expectations, putting pressure on the U.S. dollar and causing U.S. bond yields to fall noticeably,” said Commerzbank analyst Carsten Fritsch. “As a result, the gold price climbed to $1,760 per troy ounce to reach its highest level since the end of August.”2
The gold rally occurred during a massive crypto selloff. The FTX cryptocurrency exchange filed for bankruptcy. Traders fear the risk of collapse will spread through the crypto space. Crypto was once hailed as gold 2.0. After this meltdown, investors are turning back to gold 1.0. They want its traditional safe haven qualities.
Analysts think there is room for gold to go even higher. It all comes down to how fast the Fed pivots on interest rate hikes. Despite some optimism, the Fed is unlikely to backtrack anytime soon. The central bank fears stopping hikes too early is the worst danger for the economy. A bull market is coming – but investors must exercise some patience.
Bloomberg Intelligence strategist Mike McGlone emphasizes long-term thinking on gold. He said, “The Fed rate-hike sledgehammer this year may have solidified the foundation for an elongated bull market in gold. Rapidly rising rates in 2022 and the steepest drop in the U.S. Treasury bond future since 1982 relative to its 200-week moving average could be forming a base for gold to resume what it typically does — outperform most commodities.”3
Banks are Bullish on Gold
UBS Bank is also bullish on gold. They forecast the price of gold to rise 13% by next winter, up to $1,900 an ounce. The bank is recommending their clients go long on gold. UBS analysts believe the risk-reward of owning it will increase as the Fed’s tightening cycle slows down. They said gold prices historically rally 19% for every 1% cut in real interest rates. The Swiss bank does caution gold can see headwinds in the immediate future. The Fed may need to raise rates again before they start dropping them down. But they believe gold is set for a long-term rise.4
UBS indicated that support for gold is being amplified by institutional investors. Central banks have been buying gold at a record pace. They are looking to diversify away from the US dollar.
The BMO Capital Market bank echoes the UBS position. They expect gold prices to remain steady for the next few months. And then break out above $1,700 an ounce by April next year.
“We’re expecting gold prices to remain fundamentally well-supported,” said Rory Townsend, an associate at the Canadian-based bank and author of the latest gold report. “And that partly is on inflation remaining stickier for longer, that is also partly on slower growth over the outlook period, and it’s also on the elevated geopolitical risk remaining.”5
BMO did note an interesting gold contrast. Gold ETF outflows are increasing but the demand for physical gold is on the rise. This is especially true in China. It may reflect a loss of faith in markets and a demand for the safe haven benefits of physical gold.
Individual investors are being presented with a tremendous buying opportunity. Economic indicators are pointing to a long term rise in gold prices. A bull market will be there for those who invest now and are patient. Contact us today to learn how a Gold IRA could be right for you.