The Magazine for Asian Investors
The gold price continues to move at a high level, despite the fact that at the moment much is probably also due to the war in Ukraine. But even before the outbreak of the war, the sentiment around the precious metal was bullish. Surprising was also the interest rate hike, but also the statements of the Fed about still further and possibly higher interest rate increases did not let gold collapse.
Whether Fed Chairman Jerome Powell already has an idea of the situation the Fed currently finds itself in is not yet clear. What is clear is that the Fed wants to bring down out-of-control inflation, and as he himself said earlier this week, “We will take the necessary steps to ensure a return to price stability.” In doing so, the Fed could potentially be shooting itself in the foot, because even though the labor market numbers are historically strong, they want to proceed cautiously with interest rates. One wants to fight rising inflation, but the global uncertainties could cause the economy to fall into recession. In addition, one should continue to keep an eye on real interest rates, because although interest rates have now been raised to 0.5%, real interest rates are still far in negative territory. Good for the gold price, bad for the people who put their hard-earned money in banks and now have to watch inflation eat up their purchasing power.
The gold price has already consolidated at a high level since last year, which was a very bullish sign. The excessive money printing by global central banks has been noticeable since last year. Commodity prices have continued to rise since the outbreak of the Corona pandemic. In 2020 alone, 35% of all US dollars were printed. This has to be felt sooner or later.
While gold is slowly approaching the $2,000 mark, gold mining stocks have also woken up.
Shares of Newmont (NYSE: NEM), the world’s largest gold producer, are up 27.3% already this year, and shares of Barrick Gold (NYSE: GOLD), the world’s second-largest gold producer, is up 29.16% already this year. Decent gains, considering that the price of gold hasn’t moved much yet.
If one does not want to take the downside risk of the mines one can look at the streaming and royalty equities. Franco-Nevada (NYSE: FNV) shares are up 14.3% so far this year, Royal Gold (NASDAQ: RGDL) is up 33.38% and Wheaton Precious Metals (NYSE: WPM) is up 12.5%.
Since the gold price is probably far from over, there is enormous upside potential for gold shares. This could prove very profitable in the coming years, even if inflation remains high.