from Birch Gold Group:
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold’s price holding up even though interest rates keep rising, the real story of inflation, and gold remains a key asset for the new global economy.
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Gold’s outperformance is becoming a hallmark of this hiking cycle
What’s the most interesting thing about the current hiking cycle? We’re tempted to go with some of the more obvious facets. Interest rates have seen their steepest rise since the 1970s. Maybe the perpetually-increasing number of recessionary risks this has caused instead?
Today, we’ll talk about how gold has performed during the cycle, and how it continues after Fed Chair Jerome Powell’s speech on Friday. Then, Powell upset expectations by actually signaling even more rate hikes. The Chair said the Fed is willing to keep interest rates high and raise them further because, in his words, inflation remains too high.
No arguments there!
However, basic economics tell us the price of gold should be reeling on this news. (And you might find a few headlines that continue to say it will, blatantly ignoring the data.)
Over the past week, gold went from around $1,940 to today’s intraday levels of around $1,915. Both of these are still above the 2011 high of $1,910, that was seen as excessive by quite a few pundits.
Regular readers will know that the myth of gold underperforming in rate cycles is just that. In reality, gold has posted gains in nearly every hiking cycle even though higher interest rates are said to be poison for gold’s price.
Part of this comes from markets pricing in rate hikes far ahead of schedule. The remaining parts might be a mystery even to seasoned gold analysts. So the most relevant gold story this year is that gold’s price rose from $1,650 to above $1,900 from spring into summer.
And this is one that is ignored by virtually everyone as we see one bearish headline after another. Outlets wonder day after day why gold is doing so “poorly” even as it approaches its previous all-time high.
Where the price goes from here is equally exciting as the performance has been so far this year. An additional pricing-in of higher interest rates might cause a pullback to spring price levels, which will almost certainly trigger central bank bargain buying. This will, in turn, support prices massively.
By “massively,” I mean that central bank gold buying was 24% of global gold demand last year. Central banks have a lot of money! It’s difficult to overstate their role in the gold market.
In the absence of a conspicuous plummet, especially if gold doesn’t go below $1,800, even more thrills come to the forefront. Is the $1,900 price the new low? Let us not forget that gold’s low price was below $1,100 in 2015.
What, then, can we expect when the real gains materialize?
The 4% CPI figure is a joke (and not an especially funny one)
According to official data, Federal Reserve Chair Jerome Powell’s favorite measure of inflation, Personal Consumption Expenditures, sits at 4.2% and the spike above 7% was mercifully brief. So close are we to the 2% target that one might even wonder if we truly need gold in such a growth environment.
