Gold’s disappointing price action is a sign the metal is pricing in long-lasting deflation – Bloomberg Intelligence

After falling 3% last week, gold was trading near its lowest level in three weeks on Monday as the strength of the US dollar continued to pressure the metal. But there could also be another reason for the poor performance of gold prices, according to Bloomberg Intelligence.

Year-to-date, gold is down 4.3% despite massive inflation concerns, which are still top of mind for central banks around the world. And one potential explanation could be that the gold market has been chasing deflationary forces to prevail over the long term.

“Gold’s poor performance despite the highest inflation in 40 years may show that the metal, viewed as a store of value, has anticipated sustained deflation and is resuming its propensity to outperform most commodities,” Mike said. McGlone, Bloomberg Intelligence’s senior commodities strategist, in a note. Monday.

McGlone added that gold is still in the early stages of its recovery against copper and crude oil, with the outlook for the precious metal looking bright.

“Our analysis with wheat shows the metal’s tendency to outperform other commodities,” he noted. “The juxtaposition between the short-lived 1H wheat price spike and the store of value, gold, may work in favor of the metal in 2H, with lasting implications. A key economic indicator for 2H may come from the question of whether gold versus the Bloomberg Commodity Spot Index ratio will recover from a support zone that has held since 2008.”

Gold’s two biggest hurdles in the first half of 2022 were a strong US dollar and an aggressive Federal Reserve. Still, the outcome for gold could be firm price basis.

“Gold has appreciated against crude oil since the financial crisis, and the trend could be fueling the relatively low levels reached in 1H. : the paradigm shift of North American oil supply exceeding demand,” McGlone noted.

Soaring energy costs this year have led to an acceleration in rate increases. And since this increases the risk of a global economic recession, gold could benefit, McGlone pointed out.

“The gold to copper price ratio could be in the early stages of a 2H rise from a sustainable support level,” he said. “The fact that the price of copper and the Nasdaq 100 stock index are both down about 20% in 2022 through August 19 may portend a resumption of more lasting deflationary forces and buoy gold.”

Gold’s main competitor is Bitcoin.

Bitcoin is shifting to a less volatile asset, which only increases its appeal relative to gold, McGlone explained. For gold, Bitcoin is its main competitor.

“The most fluid 24/7 trading vehicle in the world, Bitcoin, gained leading indicator status in 2022 and declined in a risky environment, but the crypto could be transitioning to a high beta version of gold and US Treasury bonds,” he said. good support area.”

Bitcoin’s volatility is still relatively high, but wider adoption, such as BlackRock’s partnership with crypto exchange Coinbase, could help reduce Bitcoin’s risk, according to McGlone.

(Kitco News)

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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