Constantly reviewing the outlook for Gold is something that has become part of my regular routine. I normally don’t post too much about the Technical Analysis side of things because every man and his dog seems to be posting TA charts now so it gets a bit much. Yet when it comes to the Fundamentals there isn’t a lot of information here on STEEM. For me the two types of Analysis go hand in hand.
In my post about the Traditional Gold Price Drivers I list the main ones I keep an eye on for Gold and there is usually some flow on effect for Silver and other Precious Metals also – but not always. Here I will just provide an updated commentary on 2 of those Traditional Price Drivers and explain why I am still cautiously bullish on Gold when I take a Macro view from March 2018.
NOTE – I am still very alert to a possible Credit Crunch impacting Gold and that’s why I am cautiously bullish.
Gold the Safe Haven Asset
During the Trump Presidency we’ve had a few periods already of Safe Haven Demand spiking for Gold. Things have gone a bit quieter regarding North Korea, but we have some fresh Safe Haven Demand coming in the last week due to Trump signalling a strict import tariff on steel and aluminium that might spark a trade war. China, Canada and Germany have all vowed to respond “In Kind” if Trump follows through with a formal announcement on these tariffs this week. So there is a potential spike in Safe Haven Demand for Gold in the short term if there is any news coming out of an escalation in protectionist trade policy or rhetoric.
Gold the Inflation Hedge
This is the big one for the long term view in my opinion. Inflation is running at over 2% in the US while the US Fed Funds Rate is only at 1.5%. This still gives us Negative Real Interest Rates of -0.5% for the US so basically money in the bank earning interest is still not keeping ahead of inflation so investors are better off putting money into real assets like Gold that will be a safer store of value. Have a look at the following 3 charts and you will see the correlation.
You can see that inflation was close to zero in 2015 and there was even some deflation in that year. It was during 2015 that we saw Gold put in a low before Inflation started picking up late in the year as the Fed slowly started raising rates. This is where Gold started to pick up and reversed its medium term downtrend. We have had Negative Real Interest rates ever since that low and now that we have the Fed trying to raise rates the stock market is getting jittery. I personally think it is very possible that we will see inflation continue to climb and the Fed having to decide whether to let it run (very bullish for Gold) or raise rates and crash the stock market (causing a new Credit Crunch). It is not hard to see what the easy option is going to be here for politicians and policy makers.
Images and Credits
https://www.thestreet.com
http://www.gmanetwork.com
http://www.scmp.com
https://tradingeconomics.com
https://www.ig.com