Even though gold seems like an "ideal" asset to own right now, why hasn't its price made "a big splash" yet? Here's what Fidelity International has to say about gold's latent reaction.
Gold failed to deliver a big rally of sustained trading above $2,000 an ounce this year. But all the precious metal might need is time, according to Fidelity International — the arm of Fidelity Investments.
When looking at what has kept gold prices down, Fidelity pointed to aggressive talk from the Federal Reserve.
"[Gold] has been hamstrung by expectations the U.S. Federal Reserve will now act quite aggressively to bring inflation under control," said Fidelity's investment writer Graham Smith. "The prospect of further U.S. interest rate hikes adds to the relative attractions of the dollar over real assets like gold that have no yield. Fewer dollars are then required to buy an ounce of gold, reducing its dollar price."
The second suppressing driver has been speculation over what Russia might do with its gold reserves - one of the few assets that remained untouched by the Western sanctions introduced against Russia after it invaded Ukraine.
"Given that a substantial proportion of Russia's assets have been frozen, there's always the possibility some of the country's gold – understood to be worth around $140 billion – could be sold to make payments," Smith said.
However, the investment environment remains an attractive one to choose gold, said Smith, citing the war in Ukraine, China's economic slowdown, hot inflation, and the volatile stock market.
"Gold might have seemed the ideal asset to own, so have would-be gold investors now missed the boat? To the frustration of longer-term gold bulls, the answer is probably not. After seeing record inflows in 2020, the gold price languished last year and has yet to make a big splash in 2022," Smith noted.
Gold tried breaching the key psychological level of $2,000 an ounce on two occasions this year — once in March and the second time just over a week ago. Both times it failed to stay above that level. At the time of writing, June Comex gold futures were last trading at $1,896.20, up 0.40% on the day, but still pressured down by a stronger U.S. dollar.
One positive aspect, especially when compared to other assets like stocks and Bitcoin, is that gold managed to hold its value and grow in 2022, rising 3.6% year-to-date.
"The long-awaited big gold rally could still be on its way. The gold price – currently just under $1,900 – has, at least, displayed some stability since the turn of the year," he said. "It may be all that gold needs is a bit more time. Poor returns from shares have unsettled investors recently, and any lack of improvement could spark moves into other asset classes. It's also worth remembering that gold always has the potential to help shield investors when the world throws us a curveball."
In comparison, U.S. stocks have been selling off for most of April and Bitcoin is down 13% year-to-date.
"Bitcoin – which also headlines as a store of value – has tracked a volatile path that looks suspiciously similar to the fall then rise then fall again of U.S. technology stocks," Smith said. "Events that could still further derail shares and bonds include: interest rate rises having unforeseen knock-on effects in emerging markets, or another outbreak of international tensions, for example, starting in the South China Sea or Iran."
Another trigger that could push gold prices higher is the reported decline in the supply of the precious metal, which fell by 1% in 2021, added Smith, citing a sharp decline in recycling offsetting increases in mine production.
"Historically, supply falls – for example, between 2000 and 2008 – have preceded multi-year bull markets for gold, although there's no guarantee this will happen again," he pointed out.
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