Middle East Uncertainly Could Lead To
Higher Gold Prices
Originally posted on www.northerminer.com
The price of gold has fallen below $1,900 recently, a drop which analyst Jeffrey Christian attributes largely to shifts in the bond market. As interest rates have risen dramatically this year, many investors have pivoted to the view that the economy may achieve a soft landing and avoid recession in 2023. This has reduced demand for traditional safe havens like gold.
At the same time, some investors are moving into bonds now that yields are becoming more attractive. This bond market shift indicates growing faith that interest rates may be near their peak, causing investors to re-establish bond positions. With more opting for bonds over gold, prices for the precious metal have declined. However, Christian notes that even if gold stays around current levels near $1,850, this would still represent a record annual price for the metal.
Geopolitics Not Moving Gold Price...Yet
Recent conflict between Israel and Hamas has not significantly impacted gold trading. Prices did initially spike but gave back most gains. Christian explains geopolitical flare-ups represent just one of many factors influencing gold demand. For now, investors seem focused on upcoming inflation data and fiscal policy concerns rather than Middle East tensions. However, if the conflict expanded regionally, uncertainty could prompt more flows into gold as a haven asset.
China Buying More Gold, But Not Dumping Dollars
Both the People’s Bank of China and Chinese citizens have increased gold purchases in 2022 compared to last year. However, this does not appear to be at the expense of China’s dollar holdings. The country still runs large trade surpluses paid in dollars, which are then exchanged for yuan domestically.
Rather than dumping U.S. Treasuries, China has maintained fairly stable levels, selling older low-yield bonds but still buying new issuances. The narrative that China is aggressively selling Treasuries to buy gold does not match the data. In general, the country seems to be allocating more current account inflows to gold, while maintaining preexisting reserve assets.
Precious Metals Need Better Marketing
While Chinese retail demand for gold rebounded this year, Western investment remains lackluster. Christian believes this stems partly from a lack of effective marketing by the industry. Most commentary focuses on China and emerging markets, while little targets Western investors with compelling reasons to buy precious metals. He sees inert investor interest but hesitancy to commit, indicating a need for stronger messaging around gold’s portfolio benefits.
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