“They Sell Everything!” Experts Share The Next For Gold!

Gold prices dropped significantly this week, testing the long-term support around $1,730. But lower prices could help reset the physical bullion market and attract new individual investors, according to some analysts. Axel Merk, CIO and Founder of Merk Investments, attributes the price drop to speculators selling some of their holdings.

“Retail investors do not have enough capital for physical bullion”

Investors are seeing the precious metal as a hedge against a significant inflation risk and a safe-haven asset as fears of recession begin to mount. Therefore, the sentiment in the gold market has been on the rise over the past month. However, sales have fallen sharply in the past month. Therefore, the bullish feeling was not seen in the physical bullion realm.

According to some analysts, several factors seem to be pushing bullion sales down. The first is the sharp correction in the stock markets. The S&P 500 fell 23% in the first half of 2022, recording its worst half-year performance since the 1970s. Analysts say that in this environment, individual investors don’t have a lot of capital to buy physical bullion. However, there is another headwind the market is facing, which are significant premiums. Everett Millman, Gainesville Coins Precious Metals Specialist, says:

Gold prices were falling for most of June. However, premiums remained high. This keeps many customers away from the market.

“We still see strong demand for gold”

Everett Millman notes that the physical gold market has become somewhat unstable as investors hold their gold. He also states that this also increases premiums. He adds that lower prices should lead to lower premiums for bullion coins. Millman makes the following statement:

Weak sales figures for June are more a function of the market than a shift in sentiment. We still see strong demand for gold. Because there is still too much fear. Fear has moved away from the threat of inflation. Investors are now afraid we’re going into a recession.

“Many investors are looking at lower gold prices as a buying opportunity”

Blue Line Futures chief market strategist Phillip Streible says gold should continue to see strong demand for the rest of the year. However, he adds that the most important obstacle for the precious metal remains the US dollar. The strategist makes the following assessment:

Studies show that gold is successful in recession. Many investors look to lower prices as a buying opportunity. The question is: How much will gold prices drop before this process ends?

Axel Merk: In the short term, people sell everything, including gold

Axel Merk, CIO and Founder of Merk Investments, says the sharp fall in gold prices reveals that the ‘perception of the macro environment’ has changed and that ‘speculators’ are selling some of their assets. Merk uses the following statements in his statement:

Gold has not changed, the price of gold has changed. Policy makers don’t have many good options. So we may suffer a little. In the short run, people sell everything.

recession concerns

Axel Merk estimates that the risk of the US economy going into recession is high. While two-quarters of negative GDP growth is the benchmark for the definition of a recession, the ‘official word’ is made by a committee. They only acknowledge it as a contributing factor. According to Merk, they may not declare a ‘recession’ because unemployment and other items are low. In this context, he comments:

Markets are telling us there is some confusion out there. We faced a major supply shock. And when faced with a major supply shock, policymakers make the wrong decisions. Usually recessions are driven by demand, while this time recession is driven by supply.

How long will the Fed continue?

cryptocoin.comAs you follow, the Fed is determined to keep inflation under control. Axel Merk says the Fed will continue to tighten its monetary policy. He suggests it will reduce GDP growth and then reverse course once inflation figures look better. When it comes to monetary tightening, Merk says the Fed ‘has no choice’ and notes:

The question is whether they can stick with it. We have to stop the growth. Inflation numbers will drop and the Fed may well declare victory. But inflation will rise again.

The correct response to inflation is not to write stimulus control, but to curb demand and improve the supply side, Merk says. He argues that increased immigration will help ease inflation pressures while removing domestic barriers to oil and nuclear production, boosting GDP.

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