For the past few weeks, investors interested in buying gold have been waiting for a sign from the yellow metal.
With key signals now turning green and gold prices on the rise, it seems like the bullish case for gold is getting stronger every day.
Let’s see how.
✔️ Higher-than-expected inflation
Over the past several months, gold has been strongly correlated to the "inflation fear” factor: the more investors have been concerned with inflation, the more likely they were to turn to gold.
And this week came yet another surprise in the U.S. inflation data: the Consumer Price Index, used to measure inflation, rose 0.9% in June. This is almost double the initial forecast of 0.5%.
This has pushed gold prices up, placing them above the $1,800 line.
Why has this happened?
Because, as we’ve often explained in the SPOTLIGHT, inflation is a crucial factor for gold prices, which often move higher when economic conditions worsen and inflation increases.
✔️ Lower yields
A drop in real yields also tends to provide support for gold prices.
What’s a real yield, you may ask?
A real yield is a normal yield (the measure of the actual return of any interest-bearing asset such as a bond) adjusted for inflation.
There is a negative correlation between gold and real yields, which means that they move in opposite directions: when real yields go down, the price of gold usually goes up.
Last week, real yields dropped below -1% for the first time since February.
This has led some economists, such as Goldman Sachs analyst Mikhail Sprogis, to say that gold is currently trading at a large discount, with potential for the gold price to steamroll toward $2,000.
✔️ Bitcoin crisis
Some analysts, such as Guggenheim Investments chairman Scott Minerd, believe that the world’s largest cryptocurrency now finds itself in the midst of a crash that might take Bitcoin to as low as $10,000.
And although we believe that gold and Bitcoin are complementary assets (read our Should You Buy Gold or Bitcoin blog article to learn more on the subject), bitcoin’s persistent volatility only bolsters the yellow metal’s safe-haven appeal.
In 2020, we’ve seen gold investors moving some of their assets into bitcoin as cryptocurrencies were taking off.
But with Bitcoin now going down, could we see crypto investors turning to gold?
Of course, gold price forecasts remain what they are, just forecasts.
But the bullish case for gold still seems to be getting stronger, and it’s now for investors to look at these signals and decide: is now the time to buy?
