We have seen gold prices surging over the last week thanks to growing risk off sentiment. With inflation still causing concern, recession warnings becoming more pronounced, and the prospect of nuclear weapons being used in the Russia Ukraine war in Europe, investors are flocking back to the precious metal.
As we reported in Wednesday’s Gold Bullion Bulletin, the yellow metal has added more than £98 ($113) in a week thanks to a rally that started at the beginning of October. However, the gold bulls have much more in the tank according to Bloomberg Intelligence, with the recent price increases only the beginning of a new run.
In its latest briefing, Bloomberg analysts say they see echoes of 1999 in current price action. That’s nothing but good news if you’re about to buy gold as it means we are currently setting up for a serious price increase, with gold not likely to fall below current levels.
Mike McGlone, the respected senior commodity strategist for Bloomberg Intelligence explained, “The disparity in dollar-denominated gold vs. euro-based is nearing levels that formed a lasting foundation for the metals price in 1999. Down about 10% in 2022 to Sept. 28, dollar gold compares with respective gains of 5% and 10% for the euro and yen.
“Aggressive Fed tightening to address inflation and elevated asset prices — which is buoying the greenback, as the rest of the world tries to catch up — echoes trends about two decades ago. Underpinnings are firming for the price of gold to resume the rally that started with that base.”
Concerns raised by institutions such as NATO around a possible global recession mean that central banks including the Federal Reserve may be minded to take their foot off the gas when it comes to punishing rate hikes. This would then see gold flying through the price charts McGlone forecasts.
“Rising gold on a non-dollar basis is showing the kind of stress that may break the Federal Reserve’s rate-hike trajectory,” he says. “The relative discount in the dollar vs. euro gold spread is showing currency distress and suggests a potential catalyst for a gold bottom — an easing of Fed rate-hike expectations.
“Aggressive Federal Reserve tightening is a leading headwind for the price of gold in 2022, and if past trends are a road map, this too shall pass. The key question may be when. It makes sense that the dollar price of gold is down about 10% in 2022, with the trade-weighted broad dollar index up about the same, but most scenarios may favour a resumption of enduring appreciation for the metal.”
Bloomberg says that it foresees the Federal Reserve having some success with its mandate to bring down the persistently high levels of inflation that have caused price pressures for consumers and businesses for the last 18 months. “We expect the Fed and central banks will succeed in alleviating inflation, and see risks tilting toward an elongated deflationary period, which will favour gold,” McGlone added.
With Bloomberg’s October Metals report making it clear that the gold bulls have an extended run ahead of them, strategic investors will make their move. Don’t delay. Set yourself up for success by adding more gold to your portfolio today.
