Gold is the padding investors need as the global economy turns into a giant mosh pit
NEW YORK (February 12) The gold market continues to trade near all-time highs above $2,900 an ounce, even as rising inflation stalls the Federal Reserve’s easing cycle. Despite this environment, one market strategist said that gold prices could easily rally to $3,000 an ounce as economic uncertainty dominates the marketplace.
In an interview with Kitco News, Robert Minter, Director of ETF Investment Strategy at abrdn, said there is still plenty of value in the marketplace as the U.S. government resets traditional global relationships under President Donald Trump.
Minter said that, like in his first term, he suspects Trump is using trade tariff threats as leverage to secure better trade deals that support the U.S. economy. However, he added that Trump’s comments and extreme opening gambits will continue to add volatility and uncertainty to the marketplace.
“It feels like everyone is investing while in a mosh pit. Everything is happening so fast, and it makes it difficult to see what is coming,” he said. “Having a diversified portfolio that includes gold and a broad basket of commodities can help protect investors in this uncertainty.”
He noted that, in this environment, it is not surprising that many countries continue to look for alternatives to the U.S. dollar. He added that this international demand will continue to provide solid support for gold.
“Some of the top risks for emerging market countries are things like sanctions, tariffs, and getting cut out of the U.S. dollar trading system,” he said. “If you are a BRICS country and you were buying gold last year because of this, you're definitely buying it this year. The risks have gone up exponentially from last year.”
At the same time, Minter said many countries are questioning the health of the U.S. dollar as government debt continues to rise. In a recent chart, he pointed out that since 1993, U.S. debt has risen by 756%, while gold prices have kept pace, rising 697%.
“With all this economic uncertainty, I can’t imagine a world where central bank gold demand is lower this year than it has been in the last few years,” he said.
According to the World Gold Council, central banks bought 1,045 tonnes of gold last year. This marks the third consecutive year that central banks have purchased more than 1,000 tonnes of gold.
But it’s not just central bank demand that is providing critical support for gold. Minter said he suspects that gold’s 27% rally last year is attracting new investor attention, which should drive demand for gold-backed exchange-traded funds (ETFs).
He pointed out that last year, gold consolidated near its all-time highs above $2,600, even as China’s central bank stopped buying gold. He explained that during that six-month period, investors—through gold ETFs—bought about 3 million ounces of gold.
KitcoNews
