Gold New All Time High Against the U.S. Dollar as Yields Pressure Greenback

Gold, like many assets in the past year has defied traditional valuation. Gold used be known as an inflation hedge, however as yields have fallen as disinflation has featured with CPI and PPI falling globally gold has rallied. This Friday the price of gold hit a record high in US dollars, it has already hit new all times highs in other currencies. For example, it hit a record high in Australian dollars last month. The bet here isa currency bet, that the Federal Reserve is done raising interest rates and that the US dollar will continue to weaken.

Gold rose as much as 1.9 per cent to $2,075.09 a troy ounce, surpassing its previous intraday peak set in August 2020.

Gold is getting a safe haven bid with the global economic and political turmoil we see around us. We have war in Israel and Palestine, we have had war in the Ukraine for over a year and we have had political divides in the US concerning investors. Politically we have had dramatic shifts in elections in Argentina and Poland in the past month.

Gold prices were at $1,815 an ounce at the end of December 2022, rising nearly 9% in the fourth quarter to close a volatile year flat. Gold when it moves tends to do it quickly. Gold led a sharp rally for precious metals at the end of the first quarter last year, reaching a near-record high of $2,000 per ounce as Russia’s invasion of Ukraine triggered commodity prices to soar and led investors to pile on bullion investments for safety.

Gold was hit more so with its non-interest-bearing bullion investments, pressuring gold to a 30-month low of $1,615 at the end of Q3. From there recession concerns towards the end of last year gave some respite for bullion investments, supporting gold to rebound above the $1,800 threshold.

Jay Powell however is saying hold your horses. On Friday he said; “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” the chair of the US central bank said on Friday just before the scheduled quiet period ahead of the final policy gathering of the year in mid-December.

The Fed has held rates steady since July at a 22-year high, uncertainty about the inflation outlook and concerns about financial conditions easing further has kept officials from both signaling definitively that it has reached a peak in interest rates.

From there soaring inflation among major economies, including 42-year high inflation in the US and record-high price growth in the Eurozone, preceded an aggressive tightening of monetary policy by central banks worldwide. Higher borrowing costs, soaring bond yields. This led to a rally for the US dollar which hit gold as it did the yen, euro and other currencies.

What we garner from the past year, is the logic of arguments, recession, no recession, inflation, no inflation. Clearly the key factor is gold as a currency versus the US dollar. Another noticeable factor in this rally it is rallying with Bitcoin, which had taken much of the gold bug demand over the past few years.

Ahead what is critical for gold is to avoid the perennial false breaks. For support watch the breakup lines. Keep a close eye on yields and the currency market.

Trade Smart!

From the KnovaWave Desk