Gold has once again justified it’s position as an all time favorite longtime precious metals holders as their faith in the asset class has been validated.
Central banks have long been increasing their gold reserves and reducing their dependency on the U.S dollar.
We’ve seen since years that gold has always given the highest returns across all asset classes.
Be it inflation, geopolitical uncertainty, financial crisis- gold has always acted as a hedge tool.
In the modern era, gold continues to play a critical role in the global financial system, serving as a hedge against inflation, a safe haven asset, and a reserve asset for central banks. The role of gold as a reserve asset for central banks has been a significant driver of demand for the precious metal.
A host of positive drivers have pushed up bullion by around 14% since the middle of February. The prospect of monetary easing by major central banks, and elevated tensions in the Middle East and Ukraine have underpinned the rally. There’s also been strong buying by central banks, particularly in China, while consumers there have been loading up on bullion amid ongoing problems in Asia’s largest economy.
Gold has long been considered a hedge against inflation and the data confirms this: since 1971 it has outpaced the US and world consumer price indices (CPI). Gold also protects investors against high inflation. In years when inflation was between 2%-5%, gold’s price increased 8% per year on average.
The yearly range of gold from March 2023- March 2024 has been 1810.10- 2265.73 dollars and ounce – a whopping jump of 455.63 dollars.
Gold prices are posting sharp gains and hit a record high of $2,265.73 an ounce, basis nearby Comex futures, in early U.S. trading Monday. Silver prices are posting decent gains, too. The precious metals are seeing buying support following a mild U.S. inflation report released last Friday, when U.S. markets were closed for a holiday the U.S. dollar is cheap as the government floods the global economy with it.
Although the Federal Reserve has been tightening its balance sheet as part of its aggressive monetary policy, some analysts have noted that the nation’s money supply continues to grow.
The softening dollar is believed to be influenced by tempered expectations for Federal Reserve interest rate hikes and concerns over ongoing political and geopolitical tensions, including the conflicts in Ukraine and Gaza.
Most likely the market will continue rallies in search of an extreme before posting a top. Not forgetting some important data to be released this week-
Monday: ISM Manufacturing PMI
Tuesday: JOLTS job openings
Wednesday: ADP nonfarm employment change, ISM Service Sector PMI, Powell to speak
Thursday: Weekly jobless claims
Friday: Nonfarm payrolls