The selling point for gold is that it is a hedge against inflation, because it doesn't lose its value. It is a real commodity, unlike fiat currency. The Federal Reserve now plans to raise interest rates three, possibly four, times over the next year. The general view is that these rate hikes are bearish for the price of gold.
That's why, every time we received higher-than-expected inflation news last year, the price of gold fell. Everyone assumed that the central bank would accelerate the pace of these rate hikes. Meanwhile, since April, the VanEck Gold Miners ETF and the Van Eck Junior Gold Miners ETF, two publicly traded funds indexed to the largest gold producers and explorers, respectively, have fallen 42 percent and 40 percent. In fact, Peter said that he believes that the Federal Reserve will begin the next phase with respect to gold when markets become aware of this reality.
Meanwhile, a downward trend seems to have infected the sector, and even the biggest gold producers are looking to diversify. But between now and then, take advantage of the market's misperception that these rate hikes, if they actually occur, are bearish for gold. Markets expect the Federal Reserve to combat inflation with rate hikes, which will increase the opportunity cost of holding gold. For example, in the 1970s, in addition to rising inflation, gold was also backed by the weakening of the dollar.
When markets realize that these rate hikes aren't working well and that inflation is getting worse, that's another reason to buy gold. According to two traders, gold's reputation as a reliable hedge against inflation is at risk, as investors find other areas of the market where they can hide from rising prices. However, we believe that San Nicolas provides a small natural amount of diversification to our gold business, he said. Jackie Przybylowski, an analyst at the Bank of Montreal, recently wrote that more gold companies could try to diversify their commodities, since “the issues of electrification and green energy attract investment attention.” And supposedly, the 2% interest rate represents a huge obstacle for gold because it is an opportunity cost, and many people who trade gold won't want to invest in gold when they can get a 2% return on their cash.
Even so, given that demand for copper and zinc is expected to grow based on their use in energy transition technologies, the agreement could be a harbinger of how gold miners seek to grow in the future. Peter pointed out that the fact that gold hasn't really fallen despite the widespread belief that monetary tightening is negative for gold is a positive sign. Based on the Bloomberg Commodity Index, the US Dollar Spot Index, the BofA 3-month US Treasury Bond Index, the LBMA Gold Price PM, the Bloomberg US TiP Index, the Bloomberg Global Aggregate Bond Index, the Bloomberg Global Aggregate Bond Index, the S&P 500 Index, the MSCI World Index, the Bloomberg Global Inflation Agg Index, the MSCI EM Index, and the NASDAQ Composite Index, among all the calculations are in USD. Since central banks are trying to catch up, the frequency and magnitude of these decisions have made markets more sensitive than usual to monetary policy, and gold has been no exception.
