LAWRIE WILLIAMS: Gold price still slipping in USD as greenback continues advance
The fallout from the latest U.S. Fed interest rate increases seems to be continuing with the U.S. dollar strengthening further against most competitive currencies, while equities, bitcoin and precious metals are all falling as economies are seen to sink deeper into, or towards, recession. The gold price was picking up a little in early U.S. trading today but the overall trend has been steeply negative in recent days.
In an interview with Kitco.com’s David Lin, Ronni Stoeferle, Managing Director of Incrementum AG of Leichtenstein, who knows an awful lot about gold as founder and publisher of the excellent annual ‘In Gold we Trust’ report, suggests the dollar gold price could yet see further temporary falls, although remains very bullish on the yellow metal as a wealth protector in the longer term, even in dollar terms, seeing a plus $4,000 gold price by the end of the decade.
Stoeferle points out, as we did in our most recent article here (See: In the UK gold is living up to expectations), that in Europe, gold is already doing its job very well as a wealth protector in Euro terms, being comfortably up in price over the year to date. This is even more apparent in the pound sterling and the Japanese Yen, both of which have also depreciated in value more severely against the U.S. dollar. Stoeferle also noted that the most followed dollar index - the DXY’s - principal component is the Euro (56%), so the perceived increase in the dollar’s strength is largely a function of the greenback’s appreciation against the Euro, although other elements in the DXY’s composition have further exacerbated the position.
As to the short term gold price, one should probably be prepared for it to fall below the $1,600 level before seeing any kind of steady recovery. It certainly seems to be headed in that direction. Stoeferle does believe that the Fed will still be forced to pivot to protect the U.S. economy and that inflation will start to come down sooner rather than later, somewhat contrary to our own expressed views. He is much more experienced in economic analysis than we are so we should give credence to his viewpoint. Once the Fed is even seen to relax its aggressive stance, markets could certainly start to turn around and we suspect that gold would be one of the first asset classes to recover – and recover strongly.
Stoeferle is also much more confident about the prospects for cryptocurrencies than we have been and suggests there is a place for a selected crypto holding alongside gold as a recovery investment play. He sees cryptos moving substantially higher longer term. We are not sure we would agree!
Stoeferle’s views are at least partly echoed by billionaire investor John Paulson in a recent interview with Bloomberg. However he sees the Fed’s inflation target rate of 2% inflation as unlikely to be achieved (our own oft-stated conclusion) and that when it reaches that realisation will likely pivot and ease again. When the market realises that the Fed is effectively not in control, inflation will return from whatever level it has come down to and gold will likely rise to higher levels this time around as an inflation hedge.
So, although gold is going through a period of weakness currently, there are at least two scenarios noted above, as presented by hugely respected investment experts, which do see a major change in Fed policy in the foreseeable future, albeit for different reasons. In both cases they see gold as a significant beneficiary. There is light at the end of the tunnel for the gold investor.