Rising bond yields and the extraordinary rise in the US dollar seem to have created significant headwinds for gold. However, the precious metal remains an important hedging asset for investors, according to a commodity analyst. Here are the important predictions and comments about gold…
WisdomTree’s Nitesh Shah: Gold in good shape
Nitesh Shah, head of commodities research at WisdomTree, said in an interview that gold is doing relatively well, despite being on a downward trend for most of 2022. cryptocoin.com As we have also reported, gold prices hit the lowest level in two years in the past weeks. Overall, the market is down about 12 percent since the start of the year. This week, however, the precious metal has seen a short-term rally. It then pushed prices above $1,700, which cut the loss to 6 percent.
According to Shah’s modeling, gold prices were supposed to fall 21 percent this year, given the rise in bond yields and the US dollar’s 20-year highs. Shah uses the following expressions:
I know some people are disappointed with gold. They question why prices are not higher where there is inflation. But against this setup, gold is doing pretty well. If you’re a non-dollar gold investor, gold prices are near record highs.
Physical demand for gold is on the rise
Shah said that the reason why gold is performing well in the current environment may be the increasing divergence between the physical market and the paper market. The latest data from the US Commodity Futures Trading Commission (CFTC) proves this. The data shows that the downward speculative position in the gold market is at its highest level in four years, weighing heavily on the paper markets.
As institutional investors flee the gold market, Shah said individual investors are stepping up to buy physical. He noted that gold and silver premiums remained extremely high. He noted that this is indicative of a tight physical market. “The physical market provides a lot more support to the market than we actually think,” he said. He said the current situation is similar to 2013, when demand in the market saw an increase.
Shah added that a healthy appetite for gold is particularly evident in China. In September, the price on the Shanghai Gold Exchange rose as much as $43 above the price set by the London Bullion Market Association. The record premiums came as Chinese gold imports hit a four-year high in August.
Prices will start to rise in 2023
Shah said that alongside individual demand, unreported central bank purchases provide support for the precious metal. The strategist said he thinks the Russian central bank is buying gold as Western sanctions cut off the country’s access to global markets. Shah also thinks that the Chinese central bank is buying more gold. “We see a lot of gold flowing into China, but the premiums are pretty high. “We don’t know much about where this gold went,” he said.
Although the price of gold is expected to struggle in the near term, Shah believes that prices will start to rise in 2023. He even said he is optimistic that prices will rise above $1,900 by the third quarter. He does not believe that inflation will decline. He says central banks will be particularly successful at curbing inflation. He doesn’t think this will continue to be good for gold.
Although he expects the Fed to raise rates in 2023, Shah said he expects interest rates to peak in the first half of the year. However, he added that he saw inflation remained around 5 percent until the third quarter. He added that in this environment, investors will once again see gold as a hedge against inflation.
