It doesn’t matter how much is thrown at the gold market; despite its recent price performance, it remains a highly resilient asset.
Yes, the precious metal still has some major ground to cover before we see new bullish interest coming into the market. But let’s not underestimate how much support there is for the precious metal at these elevated prices.
This week we saw gold prices once again hold support above $1,900 an ounce, and they’re looking to end the week above initial resistance at $1,930 an ounce. All this comes as markets look for the Federal Reserve to continue to tighten its monetary policy. This environment has pushed the yield on 10-year bonds back to 4%.
Because of the Fed’s aggressive stance, we are seeing major banks take a more neutral view on gold for the second half of the year. Both Bank of America and BMO Capital Markets have downgraded their year-end average gold and silver prices.
However, gold is shrugging off the higher bond yields, as they have had little impact on the U.S. dollar, which is ending Friday at a two-week low.
Many analysts are turning bullish on gold because they believe that if gold can withstand these headwinds, what happens when the Federal Reserve does end its tightening cycle and prepares to pivot its monetary policy?
…the EXCEPTION to debt!
This was the main message from the World Gold Council this week as it released its mid-year outlook. The analysts noted that in the current environment, gold has less to lose on the downside and more to gain on the upside as the global economy sees an end to higher interest rates and the threat of a potential downturn.
This asymmetrical performance is why gold remains a valuable asset in any portfolio, according to the WGC.
Not only is gold seeing solid support, but it could start to attract some major attention as the potential for a shift in the global economy emerges. Friday, state-run RT reported that the Russian government confirmed that BRICS nations Brazil, Russia, India, China and South Africa plan to introduce a new trading currency backed by gold.
This is the latest evolution of the ongoing de-dollarization trend that has prompted central banks to buy gold at an unprecedented pace.
“Gold, Mr. Bond.”
The official announcement is expected to be made at the BRICS summit in South Africa in August. This should support gold’s long-term bull rally, but many analysts remain skeptical about what this will look like.
Will the world see the return of a gold standard, or will the precious metal just be used to create value and stability, similar to what central banks have been doing for the past year? We will have to wait for the details of the new BRICS currency to see if it has the potential to rival the U.S. dollar’s global dominance, but even the speculation should provide some bullish momentum for gold.
Written by Neils Christensen for KITCO ~ July 7, 2023
