To The Moon

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Last week, gold $Gold - main 2406(GCmain)$ broke above $2,448.8 an ounce for the first time in its history, but has since retreated below $2,400. Still, $Goldman Sachs(GS)$ analysts raised their year-end target for gold to $2,700 from $2,300 previously, based on continued buying by emerging market central banks.

The price of gold has risen more than 20% in the past two months.

Some say it's all about hedging risks with the Middle East situation escalating and Iran and Israel sharpening their knives. Others blame it on the options market and the NYMEX.

However, more people are confused about the skyrocketing gold price, an important reason is that the US inflation data and the Federal Reserve's interest rate cut expectations, at least for a while, have not influenced the trend of gold prices.

Last week's US inflation report showed consumer prices jumping to 3.5% in March from 3.2% the previous month, and core CPI staying flat at 3.8%.

The Fed has repeatedly said they need to get inflation under control before cutting rates, and this CPI data has dampened market expectations for a rate cut. Gold prices and interest rates are inversely correlated. It's hard to believe that gold is hitting record highs when interest rates have been at record highs for so long.

Faced with this mystery, Goldman Sachs analyst Nicholas Snowdon said:

There is now a need for a new way to forecast gold prices, which is to view gold as a more effective indicator of fear and wealth. This panic factor is cyclical when the dollar-backed international monetary system is under fire, like in 2000, 2008, and 2020, or maybe it's even more structural now.

If investors buy both gold and Treasuries, it shows that they have confidence in the financial system as a whole. But when gold and interest rates rise at the same time, as they have recently, it signals a clear shift in risk appetite towards real assets.