Investors Flow expected to move into gold

Investors in the yellow metal have had a roller coaster over the past few years. In 2020, when the pandemic caused investors to duck for cover, it held up as a safe haven, with prices rising 17.2%. In 2021, with expectations of a recovery, it softened 3.4%.

The year 2022 also witnessed another upswing as markets were shaken by rising interest rates and inflation, the war in Ukraine and the prolonged lockdown measures in China. As a result, gold surged another 11.8%.

Gold tends to perform well in times of economic stress. when composite leading indicators turn strongly negative, gold performs positively while equities tend to be negative. Gold also outperforms Treasuries, which are seen as competing defensive assets.

While we give the edge to the bull camp, the trade should be temporarily disappointed with the lack of a fresh stimulus move from China following their decision to leave interest rates unchanged overnight. Looking ahead to US scheduled data later today, it is not a given that gold will benefit from softer US jobs data and growing confidence in an end to the rate hike cycle, as gold yesterday failed to benefit from soft US housing data. Nonetheless, soft data will add to the idea that rate hikes are coming to an end.

Increased safe haven demand, amid worsening global economic conditions, may also push flows into gold in the coming months.

Markets can become more volatile in September, so the price downtrend in the U.S. dollar index could accelerate, or reverse. Until then, the path of least resistance for the USDX will remain sideways to lower—barring an unexpected geopolitical event that would likely drive safe-haven demand into U.S. dollars. And if the event occurs otherwise then the markets will favour gold.

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