John Reade, the Chief Market Strategist at the World Gold Council, has given valuable insights into the global gold market trends in the past. Currently, he believes a shift is underway. The primary drivers of the gold prices, he says, are altering in their potential impacts. As a driving force behind gold price movement, the U.S interest rates have long been paramount. However, Reade suggests that a transition in the gold market’s perception might be at our doorstep, and the new influences can potentially fuel the next upward course for the gold market.
To understand this shifting role, we need to comprehend the historical significance of the U.S interest rates on gold prices. Gold is a non-interest-bearing asset. Hence, it traditionally has an inverse relationship with U.S interest rates – implying that as the interest rates rise, the gold prices often decrease, and vice versa. This association is primarily because higher interest rates tend to provide investors with other lucrative and interest-yielding investment opportunities, typically causing a decline in gold prices.
Accordingly, gold prices rose to an unprecedented high in 2020 following the fall in U.S interest rates due to the global economic fallout triggered by the COVID-19 pandemic. However, as the economists predict a gradual increase in U.S interest rates in the wake of recovering economies, this might suggest a potential fall in the gold prices – but John Reade says otherwise.
John Reade posits that new primary drivers are emerging and ready to play a significant role in affecting the gold prices. These factors include an increase in inflation and the key Asian markets’ demand. An increase in global inflation is likely to drive gold prices up, as investors often use gold as a hedge against inflation. Countries like India and China play a critical role in the demand for gold. Their increased purchasing power, due to rapid economic growth, has brought a bullish trend in gold prices.
As far as the U.S dollar is concerned, the World Gold Council’s Chief Market Strategist believes that its declining trend, along with a widened U.S budget deficit and the potential of an all-inclusive U.S-China trade war, can push gold prices higher.
Despite these new drivers, John Reade emphasizes that the U.S interest rates will still play a crucial role in the gold market. While these new influences will increasingly impact the gold prices, the correlations with the U.S interest rates will not disappear overnight.
Misreading these shifting dynamics may cost the investors dearly, according to Reade. Therefore, he urges