This article on gold from Portfolio Adviser might capture the interest of some of my investors, especially those who have been taken aback by the recent surge in the value of the yellow metal. Yeah, you can probably write a better story for yourself if you have a fondness for glittering treasures and who have stuck with the yellow metal through its ups and downs over the years.
Some are scratching their heads for sure. There are numerous hypotheses regarding the dynamics at play within the gold market at the moment. This brings me to another point that I have a very long-term position on gold for investors who have a more patient approach and are less swayed by short-term market fluctuations.
Here is a section:
Are the factors pushing up the price of gold here to stay over the medium term?
The price of gold has been soaring, hitting a new high of USD2,254 at the start of April. It has risen +23% over the past six months. While rate cut expectations partially explain the drop, they are not the full story, with a number of longer-term factors influencing the price. Should investors take a renewed interest in gold, or are they too late?
The immediate trigger for gold’s new highs was the latest round of US PCE inflation data. This showed the core PCE price index rising +2.8% year-on-year, low enough to keep a June interest rate rise on the table. Lower interest rates reduce the opportunity cost of holding gold, which doesn’t have a yield, and this sent the gold price higher.
However, a drop in treasury bond yields is only one factor driving the price. Juan Carlos Artigas, global head of research at the World Gold Council, also points to US dollar weakness, an increase in market volatility, and activity in the derivatives market for accelerating gold prices. Gold has been benefiting from a “flight to safety” trade, as investors fret about US debt levels, but also from short-term factors, such as strong Chinese demand during the Spring Festival.
In the longer-term, geopolitical factors are also playing a significant role in the strength of gold. Steven Bell, chief economist, EMEA, at Columbia Threadneedle, says the gold price has behaved differently since Russia invaded Ukraine.
“In my mind, that is due to the safe haven buying of gold. Russia foreign exchange reserves have been frozen. As the reserve mature, and a lot are short-dated, they go into an interest-free account, which Euroclear then puts on deposit. Europe has already decided that the interest income will go to rebuild Ukraine.”