Is it possible for the price of gold to hit record highs later this year? The answer is yes. And it has nothing to do with whether gold is a "store of value" but with stock market volatility this time. As we all know, gold has been a reliable investment since ancient times, especially during large volatility in the stock market.
Michael A. Gayed, a well-known Wall Street analyst, pointed out in a tweet on August 18th that
"if I'm right about the credit event, gold will indeed hit new highs. Looking back at the first 20 drawdowns in the S&P 500 since 1961, gold did act as an imperfect hedge, considered as a safe-haven trade."
The main fundamentals affecting gold prices in the short to medium term are real yields and the U.S. dollar. In the past two years, real yields have been holding gold down. However, real yields appear to be approaching their peak for the current cycle.
The Impact of Real Yields& Dollar on Gold
Gold has outperformed despite the biggest spike in real yields in decades, ensuring once again that the long-term bullish case for gold has nothing to do with risk aversion. In the pre-quantitative easing era, the relationship between gold and real yields was almost insignificant. It can somehow explain why the precious metal has performed relatively well during this period. $Gold - Aug 2023(GC2308)$ $E-Micro Gold - Aug 2023(MGC2308)$ $USD Index(USDindex.FOREX)$
It is worth noticing that the gold and precious metals sector tends to perform relatively well in the later business cycle. The conditions for a significant uptrend in precious metals are slowly building. This year, we have seen gold and equities react in a similar direction to the strength of the US dollar and changes in yields. However, we did see gold outperform when the US banking crisis erupted in March as a safe-haven in investment.
As for the fundamentals and broader demand, according to the World Gold Council, it was the strongest year for gold consumption in more than a decade in 2022. In the first quarter of 2023, gold demand fell 13% year-on-year. However, total gold supply rose slightly in the first quarter due to increasing mine production and recycling. Currently, the outlook for gold is in a delicate balance, with the end of the Fed's tightening rate cycle, a weaker dollar or recession, which all have an impact on risk appetite of investors, likely driving gold prices higher. However, if the U.S. and global economies continue to show resilience, featuring rising interest rates, or soft-landing of the U.S. economy, gold prices could suffer a decline.
The bottom line on the price of gold
Currently, the bottom line for investing in gold is that gold remains a compelling safe-haven trade, especially during periods of high volatility in stock market. Real yields, the U.S. dollar, central bank purchases, and the correlation between gold and the stock market all provide strong support for gold's long-term bullishness. Gold's safe-haven appeal and potential positive reaction to credit events make it an attractive investment despite unfavorable interest rate and supply and demand dynamics.
If you're interested in investing in precious metals, it’s advisable to keep an eye on this company: $Golden Tag Resources Ltd.(GTAGF)$ Golden Tag Resources Ltd. (TSXV:GOG). The company's San Diego project area, located in the Mexican state of Durango, is in the prolific Velardeña mining district, which has hosted several producing silver, zinc, lead and gold mines over the past century. The project currently hosts at least 230 million ounces of silver equivalent in accordance with a NI 43-101 compliance and Inferred resource. Furthermore, the company strongly believes that there are 20-50 million tons of silver equivalent high-quality resources (65 million ounces to 240 million ounces) with 100-150 g/t waiting to be discovered.
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