How to invest in gold. Market analysis, price forecast

Throughout human history, gold has been highly valued. The number of wars over gold reserves is hard to count. In the 21st century, wars are often fought for oil (called “black gold”); nevertheless, yellow metal remains an essential commodity in the world economy.

From the point of view of a modern investor, the yellow metal is considered a good option for long-term investments because, over the past 50 years, it has risen in price by 50 times.

Also, gold is an “anti-crisis” asset: every 10-15 years, the world economy experiences problems, and the demand and prices for investment gold are increasing. In 2022, this is quite relevant – the coronavirus is still with us, supply chains are disrupted, and inflation is growing. However, you can invest not only in gold but also in other precious metals: silver, platinum, and palladium.

Real-time gold prices

From 2014 to 2019, there was no trend in the gold market; the price per ounce dangled between $1000-1400. At the end of 2019, the Fed gradually reduced the base interest rate, which impeded the growth of the precious metal – a bullish trend began. However, the coronavirus crisis forced the rate to be cut to a minimum. Consequently, prices quickly hit an all-time high of $2,075 in mid-2020.

Today, the exchange rate chart for gold is the calmest among all precious metals – drawdowns, with rare exceptions, exceed 30%. It also affects profitability; during periods of growth, silver and palladium often overtake the leading precious metal, but in the long term, gold shows the most stable results. In 1968, gold was worth $40 per troy ounce (31.1 grams), and in 50 years, it was already $2,000; the return on such an investment would be about 5,000% in dollars. The compound interest formula yields about 8% per year – an excellent result for long-term investments. For comparison, the average return on the US stock index Dow Jones – is 9% per year.

Significant events in the history of the gold market:

1. 1980 – considerable speculation led to a rise in the price of gold from $ 200 to $ 600.
2. 2000 – the beginning of the fall of the US stock market, known as the “dot-com crisis”. The reason for the start of the bullish trend of 2001-2012.
3. 2008 – the global financial crisis, gold doubled in price over the next four years.
4. 2012 – At the end of an 11-year uptrend, investors are dumping gold amid a post-crisis recovery in the global economy.  
5. 2019 – the first Fed rate cut in 11 years, as well as growing problems in the global economy, led to an increase in prices from $1300 to $1600 in a few months.
6. 2020 is a historical high of the gold price of $2,073 per ounce.

It is easy to see a pattern – gold grows well during periods of economic crises and for some time after them. Due to this, it is popular among investors during unstable periods in the stock market and is considered a protective asset. Moreover, gold is one of the most reliable investments of money among all precious metals:

Metal	Yield (month)	Volatility	Risk/return	Worst month
Gold	0 . 6 %	4.6 %	0.13	-16 . 8 %
Silver	0.8 % _	8 . 7 %	0.10	-30 . 8 %
Platinum	0.5 % _	6 . 3 %	0.07	-31 . 1 %
Palladium	1 . 3 %	9 . 9 %	0.13	-33 . 8 %

Of course, on average, palladium looks more interesting regarding profitability. However, a lot still depends on the entry point, and it’s not a fact that its quotes will continue to grow at the same pace – but the risks when buying this metal are very high. On the other hand, gold is the least subject to fluctuations, and in the event of sales, the rate falls more slowly.

How and where to invest in gold

Many ways to invest in gold can be divided into two types – investing in physical and paper metal. In the first case, you get real gold that you can touch with your hands – this is more familiar. By the way, we are not talking about jewellery – their value does not depend too much on metal prices, plus they are tough to sell at a profit. On the other hand, investing in “paper” gold implies the purchase of its virtual counterpart, a transaction on the actual market through an exchange intermediary, or investments in a gold-related business.

Let’s look at the pros and cons of each method and start with the most convenient of them.

Cryptocurrency Pax Gold

Perhaps it is the most modern and convenient way to invest in gold via one of the online brokers, such as Forex.com or Plus500.

Cryptocurrency is a particular type of electronic currency that is not regulated by any organization but operates based on a computer network distributed worldwide. Thanks to blockchain technology, it is very convenient to use for payments anywhere in the world, and it is almost impossible to steal funds from it.

Today, there are several cryptocurrencies whose price is pegged to the price of gold. The most popular of them is Pax. Gold or PAXG: Pax comes from the American company Paxos, which launched the “gold” cryptocurrency. One of the examples of this company’s activity is cooperation with PayPal in the cryptocurrency direction. Pax Gold is backed by natural gold bars in vaults, and the New York State Treasury Department regulates the company. In general, this is an analogue of gold ETFs, which we will talk about later. The most profitable way to buy Pax Gold – is on the Binance cryptocurrency exchange. The main advantages of investing in gold through cryptocurrency are the complete absence of storage fees and the ability to safely store it on a wallet independent of companies/brokers, for example, Trustee Wallet. Of the minuses, only that the technology is new and has not yet passed the test of time.

Forex trading XAUUSD

Forex trading is primarily related to currencies, but gold transactions are also carried out there. Gold in the terminal is often traded in pairs with the dollar (XAUUSD), sometimes with the euro (XAUEUR) and other currencies. The main advantage of the Forex market is the availability of leverage, which allows you to increase your potential profit several times over. The risks, of course, also increase. The main costs in the case of long-term investments in gold through the Forex market are swaps (daily commissions on an open transaction).

The deposit for a standard gold trade (risk factor = 1) can be calculated using the formula: For example, if you would like to open a business with lot 0.01 (for cent accounts, lot 1.00) at a gold price of $1800, you would need a deposit of $1800 (1800*0.01 *100/1). Essentially, this is the same as investing $1800 in 1 ounce of gold. To double the profit, you need to specify the risk = 2 in the formula, and the required deposit will be two times less, $900.

Stock Market: ETFs and Gold Mining Stocks

Over an extended period, gold prices constantly rise, especially if you count not in dollars but local currencies. However, there are 5-10 years when the rate remains approximately at the same level or even falls. Buying shares is an investment in gold mining; a business in any market situation will look for ways to stay in the black. Unlike ordinary gold investments, stocks allow you to receive regular passive income from dividends even during bear market periods.

Foreign gold mining companies (you can buy through a broker with access to the global stock market, such as Interactive Brokers):

• GOLD – Barrick Gold (Toronto, Canada). It mines gold and copper in Canada, the USA, Australia and other countries. Until 2019, the largest gold mining company. Dividends – every three months 1%;
• NEM – Newmont Goldcorp (Colorado, USA). It mines gold, copper, silver, zinc and lead in the USA, Canada, Australia, Argentina, Peru and other countries. Since 2019 – the largest gold mining company. Dividends – every 3 months 1-2%;
• AU – AngloGold Ashanti (Johannesburg, South Africa). Held in the top three largest gold miners, along with Barrick and Newmont. Dividends – less than 1% once a year;
• WPM – Wheaton Precious Metals (Vancouver, Canada). WPM is an intermediary between mining companies and the world market of precious metals. Fifteen contracts with 11 companies, among the most significant partners of Barrick gold. Dividends every three months are 1%.

Russian gold mining companies (you can buy through any Russian broker with a license):

• PLZL – Polyus OJSC (Moscow). The largest Russian gold mining company, a subsidiary of Norilsk Nickel. It mines in the Krasnoyarsk Territory, the Magadan Region, Yakutia and other regions. Dividends – 2 times a year 2-6%;
• POLY – Polymetal International PLC (St. Petersburg). It mines gold, silver, copper and platinum group metals. Dividends – 2 times a year 2-5%.

Buying an ETF ( Exchange-traded Funds ) is directly participating in an investment fund through the exchange. Since, in addition to the broker, there are essentially no other intermediaries in the chain between you and gold, the fund commissions (from now on referred to as CF) are low.

Foreign “gold” ETFs:

• GLD – SPDR Gold Trust (CF 0.4%), one of the most popular ETFs in the world, follows the price of gold with 99% accuracy. By buying this ETF, the investor is essentially buying bullion, but without a giant spread – the fund’s assets are in physical metal;
• IAU- iShares Gold Trust (CF 0.25%) is another ETF that invests in bullion and follows the price of gold. It is considered the best option for investing in gold through the exchange;
• DGP – DB Gold Double Long (CF 0.95%) allows you to invest in gold through an exchange with double leverage, which may be interesting for aggressive investment strategies;
• G2X – VanEck Vectors Gold Miners (CF 0.5%), the fund invests in shares of large mining companies, which also produce gold. Among them are known GOLD and NEM, a total of 45 companies. Dividends are paid.

Russian “gold” ETFs:

• FXGD – FinEx Physically Gold ETF (CF 0.45%), a Russian exchange-traded fund that tracks the price of gold. The costs of investing in “paper” gold through the stock market are even lower than in OMS. The spread when buying will be a couple of tenths of a per cent, and the broker will also charge you a small commission for opening transactions (if you do not engage in speculation).

Impersonal metal accounts

Buying and storing physical gold requires additional costs, which is why some banks launched the ability to open depersonalized metal accounts (OMAs) a few years ago. It is an ordinary bank account, not in currency, but grams of gold without a sample, numbers and manufacturer. The main plus is that there is no VAT when opening a CHI, and if you open an account for more than three years, you will not have to pay personal income tax.

The spread when buying gold through OMS is much lower than for bars or coins. If it doesn’t matter to you that the metal gathers dust at home on a shelf (well, or in a safe) and you want to work through a large banking organization, then an impersonal metal account is the best choice. According to many investors, CHI is №1 among all the ways to invest in gold.

Gold bars and investment gold coins

Buying a bar of gold is the first thing that comes to mind when you think about investing in this precious metal. It immediately recalls scenes from films where they showed Fort Knox, the primary gold depository in the United States, where hundreds of large bars lie in a row.

Meanwhile, this is not the most suitable investment in gold, although, among precious metals, it is the easiest to buy.  

You can find many sites on this topic on the Internet. However, we still recommend purchasing a large bank – so that you have documents confirming the price of the ingot on hand and do not have to order an additional examination later.

You must store the ingot very carefully because scratches and other damage reduce its value. For this reason, bank gold is sold in special protective packaging (which is also better not to be damaged). In addition, almost every bank offers the service of selling 999 gold bars.

If you can buy a bar of gold in your country without paying VAT, it looks like a good investment – gold will most likely cover 10% of the cost in a few years. And there will be no particular problems with storage: gold bars are small; if necessary, you can open a safe deposit box (it will cost an average of $100 per year). Moreover, in some countries, investment gold coins are an exciting alternative to bullion as they are exempt from VAT. These are the same high-quality bars, only minted, so their price correlates with trends in the global gold market:

For all its merits, investing in coins is a riskier way to invest in gold. There is a lot of cash, so you can easily make a mistake when buying. Also, the bank will not accept back all the coins, and it is quite possible that in 5-10 years, your cash will also stop receiving. The possibility of bulk purchases can reduce the spread to 8%, but this is only available for significant investments. In any case, the distance of 18% is almost two times better than what is offered when buying bullion.

Is it worth buying gold today?

Profit or loss from buying gold largely depends on the chosen entry point. To choose it qualitatively, it is worth analyzing the current market situation. First, pay attention to technical analysis – a method of price forecasting based on its history and unique indicators, i.e. mathematical formulas.

Widgets offered by the market collect information from 25 indicators and issue 5 types of forecasts, from “actively sell” to “actively buy”. It should take the time interval into account based on the expected duration of your transaction: less than one day – 1 minute, 5 minutes, 15 minutes; from 1 day to 1 week – 30 minutes, 1 hour, 2 hours; from 1 week to 1 month – 4 hours; more than one month – 1 day, one week. Most of you are considering long-term gold investments, so it’s best to look at a daily or weekly chart. Technical analysis will not give you the best entry point, but it will help you understand the market’s phase.

The second helpful indicator is the dollar index: Historically, the price of gold has a strong inverse relationship with the dollar. The main reason is that gold is most often traded in dollars, so when it gets cheaper, this is a good signal for precious metals and vice versa. Here the values are not particularly important; pay attention to the trend – the dollar index as a whole is growing or falling.

Fundamental analysis of the gold market: demand and production

Gold has always been the leading precious metal. It made money from it even before our era. It was the mainstay of the global financial system until the First World War – the value of paper banknotes was reinforced by gold reserves in vaults. But, gradually, they decided to abandon the gold standard – there was too little metal to balance the rapid growth of the world economy.

In the 21st century, countries print as much currency as they see fit and manipulate the exchange rate to their advantage. Still, gold remains a valuable asset of any country as part of the central bank’s foreign exchange reserves. Also, gold is traditionally widely used in jewellery and for investment. However, in general, the demand for gold has been falling since 2018, and this was especially noticeable during the start of the coronavirus pandemic.

Today, the situation is gradually recovering, and in the 4th quarter of 2021, there was record demand for gold in the jewellery industry. It is unlikely that you need to talk in detail about the variety of gold jewellery – rings, earrings, bracelets, pendants, necklaces and much more are made from it. Gold is most loved in China, India and the Middle East. However, demand for investment gold in 2021 has been relatively low. Quotes reached $2,000 in August 2020, and after that, a profit-taking period began – demand fell rapidly due to the massive withdrawal of funds from ETFs.

Interestingly, the production of ingots and coins at that moment, on the contrary, increased. According to the latest data, there are no particular movements in the gold investment market; investors have taken a wait-and-see attitude. Separately, the demand from central banks is worth noting – an exciting point that distinguishes the gold market from the markets of other precious metals. It guarantees that the gold rate will never collapse too much because it is part of the financial reserves of all world countries. Moreover, developing countries want to reduce dependence on the dollar and are trying to increase their savings on the metal. The main buyers are India, China, Turkey, Brazil, and Russia. About 10% of gold is used in industry, mainly in electronics – components for computers and phones, a small demand – in the chemical industry, dentistry and other areas. Gold enters the world market from all regions of the world. Fifty countries produce more than 10 tons of gold per year each, and the top five are China (400 tons), Australia and Russia (300 tons each), and the USA and Canada (200 tons each).

By regions, production is distributed almost evenly. Unlike demand, gold production was not particularly affected by the coronavirus. In 2020, production fell the most in Peru, by 45 tons. Another 10-15 tons were lost in Argentina, South Africa, China and Papua New Guinea. However, the losses are generally insignificant; according to forecasts, the situation will not change dramatically in 2021.

Despite this, the cost of production has increased significantly. In many ways, this is directly related to high gold prices – mining companies take advantage of the moment and increase turnover, including through less profitable deposits. It observed a similar situation in 2012. In the face of falling demand, the world market is experiencing a large surplus. You should pay attention to how different the rise in gold prices in 2011-2012 and today are. Then gold was in short supply and grew naturally; in 2020-2021, there is an enormous surplus on the market. Although prices have risen, you can’t go against the fundamental laws of the economy – with an overabundance of goods, their price will fall, which we observed in 2021.

Forecast and outlook for gold in 2022

It is complicated to accurately forecast the gold price in 2022 and understand whether it is worth investing in now. However, thanks to the fundamental analysis, we can extend/assume the situation on the gold market in 2022 and roughly estimate the possible price range.

We consider the following factors:

1. Demand and supply. We have already discussed this issue earlier: if demand exceeds supply, the prices of goods begin to rise – and vice versa. Forecast for 2022: The gold market is in deep surplus; supply exceeds demand by several hundred tons. Only ETF investors can cover the difference; in 2022, they may be interested in gold against the background of the expected stock market correction after the interest rate hike, but one should not expect much.
2. Inflation in the US. In the coming years, it will be one of the most critical market indicators – trillion dollars printed are doing their job. High inflation helps gold, but only when it causes market uncertainty and fear. The threshold for 2022 – high inflation is expected, which has not happened in the past few decades. However, it will still get on investors’ nerves, so it can be regarded as a positive for gold.
3. Fed interest rate. Gold competes with other defensive investment vehicles such as bonds. At low speeds, investments in precious metals look very attractive, and bonds and risk-free deposits bring a comparable income at high rates. Outlook for 2022: The first Fed rate hike in several years is expected during the year, but it will be small and should not significantly affect the attractiveness of investment gold. If the rate hike trend continues, it will already be a tangible blow to precious metal prices.
4. Demand for defensive assets. Gold is considered a defensive asset; that is, it grows well during periods of uncertainty and correction in the stock market. Forecast for 2022: It promises to be a challenging year for stock market investors – high inflation, rate hikes, more surprises from the coronavirus, etc. If a correction occurs, the gold investment demand will increase.
5. The price of gold and the cost of production. When expenses significantly exceed the cost, mining companies increase production and sell their gold reserves more actively – supply grows, and prices begin to fall. On the other hand, when prices are only slightly above cost, there is nowhere for them to fall below, so the likelihood of continuing the bullish trend is much higher. Forecast for 2022: although in 2021, the cost price increased by 10%, prices have grown much more in recent years, so it is difficult to count on a solid bullish trend – it is still profitable for companies to increase production and increase the supply of gold on the market.

Positive and negative factors always influence the price of gold in 2022:

From the point of view of supply and demand analysis, everything is quite apparent: the gold market is in deep surplus, and more is being mined than is being used. At the same time, the price is relatively high compared to the cost price – at the level of 2012, after which prices fell by 25%. Today, the situation is different – high inflation and an overheated stock market, which is asking for a correction, so gold has support. A lot depends on the behaviour of ETF investors, and we think that they will buy the precious metal in small quantities as a safety net so that there will be no collapse in gold prices – but also a strong growth.

• Our end- 2022 forecast: $1700/oz;
• Optimistic scenario: $2000/oz;
• Pessimistic scenario: $1550/oz.

Pros and cons of investing in gold

Today we looked at several ways to invest in gold, and now we understand the pros and cons of such investments:

Pros

• Gold is a safe investment. The long-term return of gold is unlikely to be particularly surprising for stock market investors and bitcoin optimists who are accustomed to Xs. On the other hand, the risks of investing in precious metals are noticeably lower, and this is a big plus because trends change slowly and are pretty predictable;
• The constant growth of quotations. It may take 10-20 years, but the gold rate will update the historical maximum. There is no guarantee of this in stocks – any company can go bankrupt. The main reasons for the bullish trend in the 21st century are: gradual inflation of the US dollar and regular (every 8-12 years, almost on schedule) economic crises;
• Crisis insurance. Whatever happens in the economy of a country or planet, gold will be in value;
• A financial crisis stimulates demand for metal and allows investors to get in the black quickly. In the event of a substantial devaluation of the national currency, the price of gold will rise (pegged to the dollar) and cover the negative due to exchange rate losses.

Of the minuses of investing in gold, we would single out

• Long investment horizon. It is an unpleasant minus for those not ready to wait for the result for years. Investing in gold is a long-term story; the economic cycle phases change slowly. In addition, there are extended periods of bear markets in which it is better not to touch gold or buy it close to the cost of production. Undoubtedly it is possible to make money on short positions against a long-term bullish trend, but this is riskier;
• Reinvestment does not work – this is a minus. Unlike dividend stocks, gold does not make any profit until the bar is sold or the position on the exchange is closed. Thus, money does not multiply itself and remains only to count on the rise in prices in the future. Which, however, is 99.9 % guaranteed if you have patience;
•  Additional expenses. Gold investment implies a small minus from the possible profit in commissions, taxes, and spread. This situation, to a greater or lesser extent, applies to all investment instruments, but with precious metals, it manifests itself more clearly.

For investors, the precious metals market is always attractive. But besides gold, as you know, there is also palladium, which has added 20-30% to investors’ capital for several years. Silver, since ancient times, is almost always paired with gold, but it is often forgotten. As for gold, it’s an attractive long-term way to invest. So it will hardly be a mistake to say: “If you don’t know where to put your money, invest in gold”, because this is one of the most reliable assets. The question is how to do it.

Gold’s prices are on the verge of “explosive movements” 

Lately, there has been no shortage of speculation about where the economy is heading in the next few weeks and months. However, few people focus on one of the most critical assets during an economic downturn: precious metals. There’s a reason investors have relied on these wealth-preserving assets for centuries.

Now let’s talk about the current economic turmoil and why the price of gold is poised to explode.

Fed continues rate hike strategy

At the long-awaited meeting of the Federal Reserve last week, interest rates were increased by 0.75%, which exceeded the forecasts of experts. In the face of soaring inflation, the Fed needed to raise interest rates faster than planned. As a result, it is the most significant increase the Fed has ever made in 28 years.

Financial leaders are now doubling down on a strategy to make borrowing more expensive to pull liquidity out of the system to bring down inflation. But unfortunately, these moves are coming too late as the Fed’s loose monetary policy is what got the economy into such trouble in the first place.

Consumers suffer from belated responses 

For years, a culture of irresponsible spending has dominated the US (and other) governments. As a result, world leaders often use the income of ordinary citizens to solve various problems instead of developing effective solutions. The giant bubble created by this reckless spending finally burst after the pandemic.

Consumers suffer the consequences of this bad fiscal policy as the Fed implements aggressive interest rate hike strategies to compensate for their past inaction. With inflation showing no signs of stopping, future rate hikes are inevitable. Fed chief Jerome Powell expects another 0.75% rise in July.

Secret Raid on China’s Banks

Given the dependence of the US on foreign countries for production and the strength of the dollar on a global scale, what happens worldwide has a significant impact domestically. For example, China – the world’s second-largest economy and one of the US’s largest trading partners – has faced hurdle after hurdle, adding to the strain on the US economy.

More recently, China has faced a massive run on its banking system as people desperately try to keep their wealth. Bank runs exacerbate the liquidity problem we face right now.

Gold set to explode

During all this economic turmoil, intelligent investors are increasing their investment in precious metals. But unfortunately, these proven inflation hedges tend to increase in price. Just this week, the cost of gold jumped $20 within minutes of the news of the Fed’s decision to raise interest rates. It is just a small example of the connection between gold and inflation.

As economic conditions continue to tighten, the price of gold is poised for explosive growth. Therefore, investors should not put off buying gold; otherwise, it may be too late.

Time to invest in gold  

Unsurprisingly, since the Fed’s rate hike, gold and silver prices have risen, which means more people realize that there is little the Fed can do to affect the economy at this stage. Therefore it might be better to take control of their portfolios and invest in gold and silver.

Reasons to invest in gold

Following the announcement of a rate hike from 1.25% to a range of 1.75%, the first such increase since 1994, many economists called the move the “last resort” in the fight against inflation. Nevertheless, the Fed raised interest rates and also announced further increases. As a result, officials now forecast that the federal funds rate will be 3.25% to 3.50% at the end of this year and then even higher at around 4.00% at the end of next year.

After the decline, gold and silver rose after the Fed meeting, as did the US stock markets. At the same time, it is characteristic that a rally in precious metals after a rate increase is not a “usual” reaction, significantly when the addition size exceeds expectations.

Lost confidence in the Fed?

It begs the question: Have markets already lost confidence in the Fed’s ability and willingness to tighten policy? When the loss of faith becomes apparent, money will flow into precious metals.

The rate hike was not entirely unexpected as May US inflation data, as measured by last week’s CPI, came in higher than expected at 8.6% – a new 40-year high! Some say this data forced the Fed to raise rates by 75 basis points instead of 50.

The Fed is trying to lower rising prices by raising interest rates and taming demand to meet supply.

And while the Fed does not directly set an interest rate for consumer goods such as credit cards, auto loans, or mortgages, a rising Fed funds rate will raise interest rates for consumers and businesses.

Equity markets, especially technology and growth stocks, are also susceptible to rising interest rates. Powell is aware of this, so a policy reversal is highly likely.

Despite the post-meeting rally, other sectors are also down on recession and stagflation fears. These worries drove the S&P 500 broadly into bearish territory. It means it is down over 20% from recent highs.

Markets now understand that the Fed has been talking a lot about fighting inflation, but its actions are still rather timid.

The federal funds rate, PCE inflation, recession and stagflation

Since the early 1970s, the PCE (Personal Consumption Expenditure Index) price index has not far exceeded Fed fund rates. In other words, the Fed is still far behind the inflation curve – interest rates remain well below the inflation rate.

And this is positive for gold and silver! Central banks have always been predisposed to fueling inflation by staying on the sidelines, and things haven’t changed for the better in 2022.

The second apparent reason markets rallied after the Fed’s rate hike announcement is that once the Fed funds rate reaches a “neutral rate” of around 2.5%, the increase, according to Powell, will be on “autopilot” – by 25 basis points each meeting. It will keep the current situation even longer.

In addition, the US economy’s likelihood of recession is growing.  

And again, according to Powell, there is a possibility that the Fed and the US administration will not have enough political will to endure a protracted recession, and they will cancel the policy tightening.

In 1994, the FOMC last raised rates by 75 basis points, then panicked and cut rates just seven months later.

US GDP contracted in the last quarter, while the Atlanta Fed’s GDPNow model predicts zero US GDP growth in the second quarter.

The FOMC also cut its full-year 2022 GDP forecast to 1.7% from 2.8% three months ago.

Yields on 10-year bonds are lower than those on 2-year bonds, which usually precedes a recession.

Stagflation – a combination of high inflation, stalled economic growth and rising unemployment — is more likely to hit as the Fed raises rates and economic growth continues to weaken. As soon as the situation becomes clear, politicians will call central banks to “do something”. At this stage, everything that is left in their arsenal will have a positive effect on precious metals.

It’s not just investors in gold and silver who are worried. The ECB also recently held an emergency meeting to discuss the possibility of bailing out the most indebted clients due to the rate hike. The bank is concerned about how this could affect an already weak economic zone. During next month the ECB also plans to start raising rates.

As a result, the generosity of central bank balance sheets and money printing will not stop. So, naturally, this adds to the reasons to invest in gold and silver!

 Good news for gold and silver

Fed Chairman Powell’s statement following the rate hike announcement is another example of politicians trying to distort perceptions and shift responsibility to others.

Not once in the statement did Powell mention years of loose monetary policy.

Of course, it inevitably mentioned the price of oil and military operations in Ukraine. So the market and voters need to understand that a lot of what’s going on in the economy is not controlled by the Fed, so it’s in no way their fault that we’re in this situation. It is repeated time after time – the voters’ understanding of the economy can be distorted by the statements of the media and politicians. They may lose sight of what the people in power can change. Unfortunately, people are more likely to believe what politicians and the media tell them than they experience!

The price of gold can skyrocket in autumn.   

Gold and gold mining stocks have disappointed investors over the past two years as they refused to rise amid rising inflation. But by the end of 2022, things could change dramatically.

Given the Fed’s rate hike, rising real yields and the likelihood of the economy entering recession, the current sentiment is precisely the opposite of what prevailed two years ago. Some gold investors are willing to give up, but that would be a huge mistake.

Soon gold will again try to break the $2100 an ounce mark and make a big break next time. The precious metal peaked in 2011 faster than actual returns (2012) and bottomed in late 2015, two years early.

Already, gold is outperforming actual returns at crucial turning points. Real yields have skyrocketed since November, and the yellow metal has fallen only marginally. It is a perfect sign of gold.

   

It should be noted that in 2001 and 2008, the ratio of gold to the S&P 500 strengthened and reached higher highs. The indicator again outperformed the precious asset, the first to fall in 2013. It’s not as obvious, but the ratio is within a hair’s breadth of a 16-month high and is trading above the ascending 200-day moving average.

A likely catalyst for gold to recover and overcome the $2100 mark will be the Fed’s refusal to raise rates and their subsequent reduction.

According to current market expectations, the Fed will continue to raise rates due to high inflation.

However, it is important here to recall the history of central bank monetary policy and especially to pay attention to the inflationary years of the 1960s, 1970s and 1980s. In almost half (6 out of 13) of the last rate hike cycles, the Fed has started cutting rates as early as one to two months after the previous hike. The US central bank also cut rates in 1970 with 6% inflation, in 1974 with 12%, and in 1980 with nearly 15%.  

The financial and economic system is currently unable to cope with rates above 3-4%, yield curves will reverse again, and fears will shift from inflation to recession by autumn. Inflation will fade into the background when the recession becomes evident to everyone.

History shows that when the Fed ends its cycle of raising in July, the rate cut begins in September, and if the process ends in September, the rate is cut in November. Therefore, if the final rally occurs in September or earlier, gold will retest its all-time high towards the end of the year.

? Best Online Brokers Editor’s Pick

Relevant news