Since the early 1980s, the major factor that has driven gold prices for decades were growing debt, negative interest rates and market instability. Inflation wasn’t of really much concern. Gold jumped from under $300/oz in the early 2000s to over $2,000/oz last year and has since hovered around $1,800/oz. Meanwhile, Christian noted, the correlation between inflation and gold has been low in the past couple of decades, and at times negative, though it may be making a tentative return.
Gold prices went on a volatile ride during November, rising toward USD 1,900 per troy ounce (oz) in the early stages of the month, as official inflation rates in the United States topped 6% year on year. The precious metal was unable to hold onto these gains, with gold plunging more than USD 100oz in a couple of days after Jerome Powell was confirmed to serve another term as the Chair of the U.S. Federal Reserve.
Despite the intra-month swings, gold ended the month up 2% and has now climbed more than 100 US dollars (+7%) since the lows seen in late March 2021. This sharp rise in the yellow metal has fuelled speculation about bullion re-emerging as investors’ haven in the wake of Omicron virus concern. According to commodity market experts and the bullion king of India – Prithviraj Kothari, following are the main reasons that are rerating a demand for gold and silver –
- Rising Global Inflation – With inflation hitting multi-decade highs this year, investors have started to reconsider gold as an inflation hedge, and some analysts have boosted their near-term forecasts on the back of rising prices.
- Asset Purchase – Fed policymakers look likely to accelerate the wind-down of their asset purchases when they meet later this month as they respond to a tightening labour market and move to open the door to earlier rate hikes than they had projected. So, the gold and silver price may further scale northward if the Omicron virus cases continue to rise further for a longer time.
Gold prices held steady on Monday as market participants weighed the prospect of a faster ending to pandemic-era asset purchases by the U.S. Federal Reserve after data suggested the labour market was rapidly tightening.
- Data – The U.S. employment growth slowed considerably in November, but the unemployment rate plunged to a 21-month low of 4.2%. After a turbulent week in gold and the U.S. equities, the markets were hit with a mixed employment report from November. Despite the big miss in the headline number, the details were quite optimistic, said the bullion king of India. The latest data showed the U.S. economy only adding 210,000 jobs last month versus the expected 535,000.
- Interest Rates – Reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of non-interest bearing gold.
- Economic Collapse – The IMF is warning of “economic collapse”, which should get headlines. Not because the IMF have any kind of track record of being timely or right about anything, but because the Fund so rarely says anything negative for fear of being seen as precipitating the crises which the policies it imposes always end up creating anyway.
- Omicron Virus – As fears mount over the newly identified coronavirus variant – Omicron, governments all over the world are scrambling to protect their citizens from a potential outbreak. The new mutation, being potentially more transmissible, was first discovered in South Africa and has since been detected in Australia, the United Kingdom, Germany, Israel, Italy, the Czech Republic, and Hong Kong.
Many events are happening around the world, and many more are to come. Of these, the ones that need to be closely watched –
- The U.S. inflation data on 10th December.
- FED FOMC interest rate decision on 15th December.
- An RRR cut from China. China Securities Daily says a cut could come as soon as this month.
- K. ministers announce new COVID-19 restrictions for travellers entering the U.K.
- Biden and Putin to have a phone call this Tuesday (one for the diary).
- Japan PM Kishida says to shorten the waiting period between vaccine and booster shot.
- Swiss National Bank (SNB) vice-chairman Zurbrügg to step down at the end of July 2022.
- The U.S. to fast-track revamped vaccine in the battle against omicron.
- Germany October factory orders -6.9% vs. -0.5% m/m expected.
As these uncertainties continue to grip the markets, will gold be able to find its safe-haven appeal once again?