The gold price continues to struggle in the face of the unprecedented strength of the US dollar. However, a new report from the World Gold Council says investors should put the recent price action in perspective compared to larger moves in the financial markets.
“Actually, the price of gold performed much better than these”
Koindeks.com As you can follow, the gold market has seen a valuable selling pressure. It briefly slumped to $1,621, a two-year low. However, prices have dropped by just less than 10% since the beginning of the year.
Juan Carlos Artigas, global research leader of the World Gold Council (WGC), says in his latest report that gold should be closer to 30% given where the US dollar is with bond yields. December gold futures were last traded at $1,641, up 0.51% on the day. Artigas makes the following assessment:
In fact, gold has outperformed inflationary bonds, both in the US and elsewhere. And we believe that gold’s performance this year reflects the behavior of the underlying factors.
“The gold market may find some reinforcement by the end of the year”
Looking at the broader financial markets, the S&P 500 is down about 23% to date. The tech branch was hit even harder, with the Nasdaq falling more than 30%. The only branch where gold hasn’t performed better is the broader commodity index. Artigas comments:
The fact that gold is performing as well as it does is, all things considered, a testament to its global appeal and more subtle reflection on a wider set of variables.
Artigas expects gold to continue to struggle in the face of rising interest rates. However, he says he is optimistic that the gold market may find some measure of reinforcement by the end of the year.
“It is possible that these will put pressure on the US dollar”
Markets expect the Federal Reserve to continue raising interest rates aggressively. However, WGC says the tightening cycle is nearing its end. Artigas explains his views as follows:
Given how much tightening has occurred so far, we expect rate hikes to slow. We anticipate that this will allow gold’s other supporting factors to play a more valuable role. Moreover, it is possible that other central banks’ more decisive policy decisions, partly to curb inflation and partly to defend their currencies, may put pressure on the US dollar.
“Central bank purchases provide solid reinforcement for gold price”
According to Artigas, calm risks are mounting as central banks continue to tighten monetary policy around the world. He adds that this situation should provide a measure of reinforcement for the yellow metal. Finally, Artigas notes that central bank demand provides a solid footing for gold as it continues to move its assets away from the US dollar.
Last week, the WGC said that the central bank of Uzbekistan is extremely active in its gold division. WGC noted that Uzbekistan bought another 8.7 tons of gold in August. Also, this marks the third month of purchasing in a row. WGC noted that Uzbekistan received 19.3 tons of bullion this year, bringing the total reserves to 381.3 tons.