The gold price continues to struggle against the unprecedented strength of the US dollar. However, a new report from the World Gold Council says investors should put the recent price action into perspective compared to larger moves in the financial markets.
“Actually, the gold price performed much better than these”
cryptocoin.comAs you can follow, the gold market has seen a significant selling pressure. It briefly slumped to a two-year low of $1,621. However, prices have dropped only less than 10% since the beginning of the year.
Juan Carlos Artigas, head of global research at the World Gold Council (WGC), says in his latest report that gold should be closer to 30% given where the US dollar is with bond yields. December gold futures were last traded at $1,641, up 0.51% on the day. Artigas makes the following assessment:
In fact, gold has far outperformed inflationary bonds, both in the US and elsewhere. And we believe that gold’s performance this year reflects the behavior of the underlying factors.
“Gold market may find some support until the end of the year”
Looking at the broader financial markets, the S&P 500 is down about 23% to date. The tech sector was hit even harder, with the Nasdaq falling more than 30%. The only sector where gold hasn’t outperformed is the broader commodity index. Artigas comments:
The fact that gold is performing as well as it does is, all things considered, a testament to its global appeal and more nuanced response to a wider set of variables.
Artigas expects gold to continue to struggle in the face of rising interest rates. Despite this, he says he is optimistic that the gold market can find some support by the end of the year.
“It is possible that these will put pressure on the US dollar”
Markets expect the Federal Reserve to continue raising interest rates aggressively. However, WGC says the tightening cycle is nearing its end. Artigas explains his views as follows:
Given how much tightening has occurred so far, we expect rate hikes to slow. We anticipate that this will allow other supporting factors of gold to play a more important role. Moreover, it is possible that other central banks’ more determined policy decisions, partly to curb inflation and partly to defend their currencies, may put pressure on the US dollar.
“Central bank purchases provide solid support for gold price”
According to Artigas, recession risks increase as central banks continue to tighten monetary policy around the world. He adds that this should also provide some support for the yellow metal. Finally, Artigas notes that central bank demand provides solid support for gold as it continues to move assets away from the US dollar.
Last week, the WGC said that the central bank of Uzbekistan is extremely active in the gold sector. WGC noted that Uzbekistan bought another 8.7 tons of gold in August. It also marks the third consecutive month of purchasing. WGC noted that Uzbekistan received 19.3 tons of bullion this year, bringing the total reserves to 381.3 tons.
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