Gold is proving remarkably resilient, with gains of nearly 7% this year, with investors asking to raise real yields and strengthen the dollar to focus on political and economic risks.
While traditional yield and currency drivers suggest bullion is overvalued, demand for the Haven asset remains strong. This is because buyers of gold accumulating in exchange-traded funds are taking a pessimistic view of the US Federal Reserve Ability to quell decades-high inflation without hurting the economy. For them, gold is a hedge against rising prices and low growth.
“Gold is effectively raising questions about the Fed’s ability to raise real rates while providing a soft landing for the economy,” said Marcus Garvey, head of metals strategy at Macquarie Group Ltd. being successful.”
Growing geopolitical uncertainty following Russia’s invasion of Ukraine is also driving strategic portfolio diversification by investors, who are less concerned about higher real rates, according to Joni Teevs, an analyst at UBS Group AG.
The global economic outlook remains unclear as a strong recovery from the pandemic is marred by the war in Ukraine and China’s ongoing fight against COVID-19. Any escalation in the conflict, which is already weighing heavily on growth forecasts, could further intensify gold’s appeal.
Sanctions on Russia could also herald a more far-reaching change that is consolidating bullion. Influential analysts such as Credit Suisse Group AG’s Zoltan Possar predict that the seizure of nearly half of the Russian central bank’s foreign exchange reserves will result in a new monetary paradigm where gold plays a bigger role.
David Chao, former Japan Global Markets Strategist for Asia Pacific at Invesco Ltd., said: “Current price inflation and rising yields have less to do with and more to do with geopolitical risks and accumulating alternative sources of funds for the Russian central bank. is.” “I’m a little surprised that gold isn’t at high prices.”
Marginally, the blacklisting by Western markets of gold from Russia – the world’s No. 2 producer – could also have an impact.
Still, for many observers, there are signs that the gold rush may soon be coming to an end. Inflation-adjusted Treasury yields turned positive on Wednesday for the first time in two years, while the dollar is trading at its highest since July 2020, making bullion – which is priced in the US currency – more expensive for foreign investors.
“We believe the economy will remain resilient while price pressures are showing some early signs of peaking,” Carsten Menke, an analyst at Julius Baer Group Ltd., wrote in a note. must disappear from those seeking safe haven.”
The result of the Fed meeting in about two weeks will be the next big test for gold as policymakers try to contain inflation. Money market traders are betting that the US central bank will raise interest rates at the meeting to help curb inflation at the fastest pace in four decades.
The European Central Bank, meanwhile, may raise its policy rates to above zero before the end of the year, unless the euro-zone economy suffers a severe blow, and adopts a “restrictive” policy to keep rising prices under control. may also have to apply. Council member Pierre Wunsch said on Thursday.
In Singapore, as of 1:31 pm, spot gold was down 0.3% at $1,951.87 an ounce. Silver, platinum and palladium all declined.
Currently, gold is expensive relative to real rates, but this gap is likely to narrow over time, according to FX strategist Luc Luet of Pictet Wealth Management. “In the long term, slow growth and high inflation will make monetary policy normalization particularly difficult in the US, which should be in favor of gold,” he said.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.