Gold is on the cusp of a second consecutive week of gains amid heightened inflow into safe havens. After four days of gains, the precious metal is staring at the $2,700 an ounce level. The latest upward momentum fuelled upbeat non-farm payrolls. An indication that the US economy added 256,000 jobs in December against 160K expected is once again fuelling inflation concerns.
Inflation Concerns
A spike in inflation is already fuelling tensions in the financial markets, prompting investors to rush to safety into a haven. A spike in inflation could force the US Federal Reserve to leave interest rates at current levels and, if forced, hike as one of the ways of averting further spikes. In recent months, equity markets have been increasing amid growing bets that the FED will cut after conducting two rate cuts last year.
The uncertainty over the interest rate trajectory is one factor that is fuelling demand for gold as a safe haven. The Fed may continue to rely on data and abandon markets in the future. Donald Trump’s inauguration is just ten days away, and there’s a chance that economic data will start to push concerns higher once he takes office. That might make the assumption that $3,000 for gold by the summer is not so crazy.
In addition to interest and uncertainty in the US, soaring geopolitical tensions stemming from the Russia-Ukraine war and tensions in the Middle East also drive safe-haven flows into gold, pushing prices higher.
Similarly, the fear of trade wars with president-elect Donald Trump poised to assume office on January 20 also makes investors uneasy. Reports indicate that Trump is considering declaring a national economic emergency to justify implementing universal tariffs on allies and adversaries.
The rally in gold prices close to $2,700 comes against the backdrop of the US dollar strengthening. The US dollar index, which measures the strength of the greenback against the basket of other major currencies, has strengthened to two-year highs. The dollar strength has done little to lower gold prices, as the two are negatively correlated.
Given that stocks are experiencing fresh challenges in the New Year, gold might be the best option to weather this uncertain market. Analysts at JPMorgan expect Gold prices to spike significantly should US policies become “more disruptive” in the form of higher tariffs, heightened trade tensions, and more significant risks to economic growth.
Last year, gold recorded its best annual performance in more than ten years. The yellow metal gained 26% due to strong purchases by both central banks and individual investors.
Gold vs. Bitcoin
Meanwhile, Mark Cuban is touting Bitcoin as a better store of wealth than gold even though it is one of the newest currencies on the block. According to the billionaire investor, interest in gold is based on its potential as a backup plan in the event of a downturn in the economy or other unfavourable events rather than the supply and demand for jewellery.
In the event of a downturn in the economy, Cuban maintains that he would prefer to own Bitcoin over gold because it has more value. According to Cuban, the largest cryptocurrency in the world, bitcoin, is seen as a great store of value by many of its holders.
