According to the precious metals team at Vaneck, the gold market remains in a long-term bull market, but the US dollar’s rally is holding a cap on prices, which should have been a perfect environment.
“Dollar dampens gold price advance in current bull market”
In their latest precious metals reports, VanEck International Investors Gold Fund (INIVX) portfolio manager and strategist Joe Foster and Deputy portfolio manager Imaru Casanova says that the current gold market bull rally in the US dollar has been determined in previous years.
Strategists remain long-term gold bulls and say the precious metal may continue to struggle as the US dollar trades around its 20-year high. Portfolio managers evaluate in the report:
Gold is re-serving its historic role as a financial safe haven and store of wealth. However, many gold advocates wonder why gold hasn’t been higher given what’s been going on. While gold and the US dollar sometimes trend higher together during times of acute financial stress, the normal relationship is inverse. We believe the US dollar has dampened the progress of gold in the current bull market.
“This may support precious metal”
With the widening gap in global monetary policy, the Fed’s leading interest rate hikes, USA supports the current rally of the dollar. As you can follow from Cryptokoin.com news, there are increasing expectations that the Fed will raise interest rates by 50 basis points in the next three monetary policy meetings.
While the US dollar continues to put pressure on the gold market, Foster and Casanova state that this environment poses significant risks to the global economy, which in turn may support the precious metal. Strategists explain:
Along with a potential debt mess, inflation and rising rates can cause a number of undesirable consequences, or ‘black swans’. The first may come from Japan, which has the highest debt-to-GDP ratio in the developed world. Other countries may also feel the pain of the rising US dollar. Because as the dollar appreciates, countries’ debts become more expensive in their local currencies.
Alongside the increased economic risks stemming from the rising momentum in the US dollar, VanEck is also bullish on gold as they expect inflation to keep real interest rates low. Strategists note that the last time inflation got out of control in the 1970s and 1980s, the US central bank was forced to raise interest rates to double the inflation rate.
