Gold Fighting Fed & Dollar Headwinds
ADVERTISEMENT
The Assay - Mining investment news, insights and company profiles
Mining investment news, insights and company profiles
No Result
View All Result
Subscribe
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
The Assay - Mining investment news, insights and company profiles
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
No Result
View All Result
Subscribe
The Assay - Mining investment news, insights and company profiles
No Result
View All Result
Home Articles

Gold Fighting Fed & Dollar Headwinds

By Gavin Wendt, Founding Director & Senior Resource Analyst, Minelife

byThe Assay
4 years ago
Reading Time: 5 mins read
Gold Fighting Fed & Dollar Headwinds

“If you don’t trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000-$5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?” — Kenneth J. Gerbino

In this note we’re reviewing interesting recent developments with respect to gold. According to the World Gold Council’s mid-year outlook, gold will likely shine over the next 6 to 12 months as heightened risk meets easy money. Globally, central banks have clearly pivoted back toward easy money. The World Gold Council projects that this turn, along with continued financial market uncertainty, will likely support gold investment demand and nudge prices generally upward.

Gold Fighting Fed & Dollar Headwinds

Gold will likely shine over the next 6 to 12 months as heightened risk meets easy money. Gold ranked as one of the best-performing assets through the first half of 2019, beaten only by stock markets – which have also been supported by the turn toward looser monetary policy – and oil. And if you combine gold’s gains through H1 2019 and Q4 2018, nothing beats it. While US stocks made significant gains in dollar terms over the first six months of the year, they actually lost values when priced in gold.

Globally, central banks have clearly pivoted back toward easy money. The World Gold Council projects this turn, along with continued financial market uncertainty, will likely support gold investment demand and nudge prices generally upward. The WGC report offers a succinct summary of the 180-degree turn in monetary policy, noting that it happened rather rapidly. It also points out that the Fed doesn’t often act against market expectations.

“Global monetary policy has shifted by 180 degrees. Less than a year ago, both Federal Reserve (Fed) board members and US investors expected interest rates to continue to increase, at the very least through 2019. By December, the most likely outcome was for the Fed to remain on hold. Now, the market expects the Fed to cut rates two or three times before the end of the year. And while statements by board members, including Chairman Powell, are signalling a wait-and-see approach, the market has barely changed its forecast. The Fed may not do what the market asks, but it generally doesn’t like to surprise it either. In recent history, the Fed adjusted its funds rate in line with expectations whenever the market’s implied probability of such outcome was 65% or higher; the only notable exception was rate cut announced during an un-scheduled Federal Open Market Committee (FOMC) meeting in January 2008 when the global financial crisis began to unfold.”

Gold Fighting Fed & Dollar Headwinds

The WGC report notes a number of significant risks in the market right now, including the potential long-term effects of increased tariffs, tensions between the U.S. and Iran, uncertainty surrounding Brexit, and overvalued stock markets. Low interest rates are having the perverse effect of fuelling a decade-long stock market rally with only temporary pullbacks. This has pushed stock valuations to levels not seen since the dot-com bubble. Worryingly, in the event of a recession, central banks – including the Fed – may not be able to rely on cutting interest rates. Instead, they may need to use quantitative easing and, possibly, new non-traditional measures to reinvigorate the global economy.

Gold Fighting Fed & Dollar Headwinds

The WGC report also noted that a large portion of the world’s sovereign debt now carries negative real interest rates. As we highlighted in our previous commentary on gold, the current U.S. economic expansion that began during June 2009, is set to become the longest in history. But it’s all the result of Quantitative Easing (or QE or ‘easy money’) on a massive scale, which has had the nasty consequence of seeing US debt escalate at unprecedented levels.

QE worked well in lifting asset prices, but was not so beneficial for the overall health of the US economy. QE was ultimately a massive “wealth transfer” from the lower and middle classes to the rich, which has generated one of the most significant wealth gaps in US history, together with an asset bubble of historic proportions. In terms of overall borrowings, the US national debt for the first time passed $22 earlier this year and its manageability could have a big longer-term impact on the US economy.

Gold Fighting Fed & Dollar Headwinds

At the same time there are more immediate question marks over the longevity of the US stock market bull run, with various indicators suggesting that the expansion could turn into a contraction in the very near future – hence the desperate move by the Fed towards a likely rate cut.

While we’ve seen the Fed Funds rate increase from 0% to 2.25–2.50% over the last few years, these short-term interest rate levels are still extremely low by historical standards. But these modest interest rate increases have still managed to negatively impact the rate of US economic growth. How would the US economy cope if rates returned to anywhere near normal levels? Ultra-low borrowing rates is the only factor that has kept the U.S. deficit from surging past $1 trillion annually.

Which brings us back to gold, with the metal being the direct beneficiary of this stock market uncertainty. There is a strong inverse correlation between gold and the S&P – their respective bull cycles don’t occur at the same time. If the S&P is doing well, it’s likely that gold is stagnant or struggling to hold form. This is clearly reflected in the graphic below. Since August 2018, gold hasn’t looked back.

With the Fed seemingly giving the signal that the next move in rates might be lower, there is likely anticipatory buying in gold occurring as declining real interest rates, declining economic growth and a declining stock market all make gold the go-to safe haven investment.

Gold Fighting Fed & Dollar Headwinds

Conclusion

The confluence of events is undeniable: M2 surging, economic growth slowing, inversion of the yield curve, real interest rates likely declining further as the prospects for a rate cut increase, high valuations in stocks, a concerning technical picture in the S&P, together with international trade and diplomatic tensions – have all resulted in gold making further strong gains.

The conclusion to draw is that while there will be natural volatility in the gold market over the short-term, the overall upward trend for the yellow metal remains intact, as investment and central bank demand remains robust. Accordingly, I’ve adjusted upwards my previous forecast trading range for gold for the balance of 2019 from $1250 to $1350, to $1350 to $1450.

Tags: GoldInsightsPrecious Metals
TweetShareSend
Previous Post

Australian Research Independent Investment Research – Lake Resources NL (ASX: LKE)

Next Post

The New Criterion: Sniffing out Golden Opportunities on the ASX

Related Posts

Eloro Resources Closes C$10.9M Bought Deal Financing
News

Eloro Resources Closes C$10.9M Bought Deal Financing

byColin Sandell-Hay, Contributor - The Assay
28 January, 2023
Vizsla Silver Undertaking $34M Brokered Private Placement
News

Vizsla Silver Undertaking $34M Brokered Private Placement

byColin Sandell-Hay, Contributor - The Assay
28 January, 2023
Galantas Gold Acquires Exploration Rights in Scotland
News

Galantas Gold Acquires Exploration Rights in Scotland

byColin Sandell-Hay, Contributor - The Assay
27 January, 2023
Kiboko Drills Multiple High-Grade Intervals at Harricana Gold Project
News

Kiboko Drills Multiple High-Grade Intervals at Harricana Gold Project

byColin Sandell-Hay, Contributor - The Assay
27 January, 2023
Talisman Mining Announces Commencement of Major 2023 Drill Campaign
News

Talisman Mining Announces Commencement of Major 2023 Drill Campaign

byKatie Gordon, Business Reporter - The Assay
26 January, 2023
Exploits Discovery Announces Diamond Drilling Results at Titan Gold Target
News

Exploits Discovery Announces Diamond Drilling Results at Titan Gold Target

byKatie Gordon, Business Reporter - The Assay
26 January, 2023
Next Post
The New Criterion: Sniffing out Golden Opportunities on the ASX

The New Criterion: Sniffing out Golden Opportunities on the ASX

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

ADVERTISEMENT

Popular Articles

  • Bolivia Maintains it Historic Profile as a Global Silver Centre

    Bolivia Maintains Its Historic Profile as a Global Silver Centre

    0 shares
    Share 0 Tweet 0
  • The Assay Guide to Palladium vs Platinum

    0 shares
    Share 0 Tweet 0
  • The Rise and Rise of Indonesian HPAL – But Can It Continue?

    0 shares
    Share 0 Tweet 0
  • Zinc Mining & Market Outlook 2022-2025

    0 shares
    Share 0 Tweet 0
  • Commodities Markets Stir in the Wake of China’s Reopening

    0 shares
    Share 0 Tweet 0
  • Home
  • News
  • Articles
  • Investor Discussions
  • CEO Interviews
  • Company Profiles
  • Newsletter
  • Magazine
  • About Us
  • Our Team
  • Contact Us
Hyve logo

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

No Result
View All Result
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

Go to mobile version