Rising interest rates and a stronger US dollar have weighed on gold, but there’s another element at play as well.
Gold has left some market watchers underwhelmed this year after 2020’s all-time high. What’s keeping the yellow metal down, and is there an end in sight?
Speaking to the Investing News Network, Will Rhind, CEO of GraniteShares, said rising interest rates and a stronger US dollar are part of the reason gold has failed to gain much steam.
But there’s another element at play as well. “I think what really is going on though is we’re transitioning in terms of this gold market from (last year’s) crisis hedge environment … to gold being not needed as a crisis hedge for the moment,” he explained. “We’re transitioning into an inflation hedge environment.”
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Gold continues to perform well in the second quarter. After starting this week around the US$1,780 per ounce mark, the yellow metal nearly reached US$1,800 mid-week.
Experts have pointed to lower US 10 Year Treasury yields as at least part of the reason for gold’s uptick during the period. Yields sank below 1.6 percent, and some market watchers have suggested that a fall below 1.5 percent could push gold over the key price of US$1,800.
“What’s obviously underpinning the upswing (in gold) is the dynamic in US Treasuries … which is sort of pushing lower in the very short term,” analyst Kyle Rodda of IG Market told Reuters.
“I think those two things especially will contribute to gold being a strong performer over the next several years. This is something that’s going to last for a little while, certainly.”
Looking more specifically at inflation in 2021, Lichtenfeld said he thinks it will be “significantly stronger than anybody really is talking about.” He explained, “There’s just a lot of money sloshing around, chasing a limited supply of goods and services and so that has to raise prices.
Gold is typically viewed as a good hedge against inflation, but what else can investors do to create an inflation-proof portfolio? Lichtenfeld recommended looking at value stocks.
Last week’s top-gaining stocks on the TSX were St. Augustine Gold and Copper, New Pacific Metals, Roxgold, Orocobre and Lundin Mining.
The S&P/TSX Composite Index (INDEXTSI:OSPTX) opened higher last Friday (April 16), trading at 19,345.74 by midday. It closed the period at 19,348.11.
After a record high the previous session, the index extended gains on the back of a higher gold price.
On Friday, gold hit a seven week high, with silver also on track for a weekly rise as the American dollar softened and US 10 year Treasury yields retreated.
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