Rising gold prices are on track to break all-time highs and remain elevated. They are being driven by a sharp rise in global economic uncertainty. American Hartford Gold is seeing investors turn to safe haven assets like gold to hedge against the risks of failing banks, geopolitical turmoil, and unrelenting inflation.

Gold hit a new record high of $2,085.40 an ounce during the first week of May.¹ The price of gold hasn't approached that level since March, 2022 after Russia invaded Ukraine.² As a sign of increased gold demand, the US Mint reported its best first quarter performance since 1999. The Mint sold 215,000 ounces of gold in various denominations of its American Eagle gold coins.³

Bank Failures

One of the main reasons for the current surge in gold prices are the recent stunning failures of major banks. The combined collapse of First Republic Bank, Silicon Valley Bank, and Signature Bank was bigger than the 25 banks that failed in 2008.

Investors feared that a new financial crisis was going to sweep across the globe leaving a trail of economic ruin in its wake. Bill Ackman, billionaire hedge fund manager, compared the collapse of Silicon Valley Bank to Bear Stearns, the first bank to fall in the 2008 Financial Crisis. 

“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall,” Ackman said.⁴

Historically, gold prices surged as banks fall. During the 2008 Crisis, gold hit a historical high of $1950 from $650. At the same time, the Dow dropped 7000 points, wiping out $7.4 trillion of stock wealth. ⁵

Federal Reserve Policy

Investors looking for safe havens moved away from Treasuries and towards gold as yields declined. Yields dropped on recent data that implied the Fed's monetary policy could drag the global economy into recession.⁶

Gold prices are also bolstered by a softening dollar. Cooling inflation data suggested that the Federal Reserve may pause rate hikes after the most recent one in May. The case for a Fed pivot was strengthened by the bank failures, which were largely attributed to the central bank's aggressive rate hikes.⁷

The chief investment officer at St. Gotthard Wealth said, "Should we continue on this hiking path, something will break, and then they will be forced to cut at a time when inflation may not be rooted out. That of course is extremely bullish for gold."⁷

Historically, gold prices increase as interest rates decline. The opportunity cost of holding non-interest paying metals are reduced when bond yields lower. And the price of commodities denominated in dollars increases as the currency weakens.

Persistent Inflation

Gold is a traditional hedge against inflation. While data indicates that inflation is slowing, it is still lingering far above the Fed's 2% goal. Among the key categories still seeing outsized price growth are food, which climbed 8.5% from March 2022 to March 2023, and rent, which hit 8.3% growth, its largest-ever 12-month increase. ⁸

Inflation may also be fueled by the recent cut in oil output by the OPEC+ countries. Some experts have suggested that elevated oil prices could push inflation higher.⁹

Thus, even though inflation is slowing, it is not going away anytime soon. The higher prices of the past year will be with us for some time to come. Lowered interest rates and persistent inflation creates 'goldilocks conditions' for gold. ¹⁰

Central Bank Buying

The demand for gold extends beyond individual and institutional investors. The World Gold Council said overall gold purchases soared to an 11-year high in 2022 due to "colossal central bank purchases." Last year was the 13th successive year of net purchases and the largest level of annual demand since 1950. A World Gold Council survey found 61% of central banks expect to increase their gold holdings over the next year. In general, the banks are buying gold for the same reason individual investors do - as a hedge against monetary and political instability. ¹¹

China is leading the gold buying spree, adding an extra 15 tons of gold to its reserves in January.¹² They now have the sixth biggest central bank bullion stockpile. ¹³ China is seeking more than the wealth protecting benefits of precious metals. China is leading a global consortium of countries to dethrone the US dollar. They are working with the other nations including Russia, India, and Brazil to create a new currency backed by gold and rare minerals. ¹⁴

Russia is also fervently building its own gold reserves. They are strategically investing in assets that can't be sanctioned. About half of the country's international reserves were frozen following Russia's invasion of Ukraine. Analysts expect Russia's gold purchasing will continue for as long as sanctions remain.¹⁵

Predictions

With all these factors amplifying each other, gold has the potential to reach all-time highs. Fitch Solutions conservatively predicts that gold will reach a high of $2,075 and expects gold to “remain elevated in the coming years compared to pre-Covid levels.” CMC Markets sees gold trading between $2,500 and $2,600 an ounce. While Bloomberg Intelligence and Wells Fargo predict that gold prices could eventually reach $3,000 an ounce. ^{16 17 18}

The current economic environment presents a favorable outlook for the price of gold. Demand for gold is rising in sync with the rise in global turmoil. People looking to protect the value of their portfolios should investigate precious metals. As prices continue to rise, a Gold IRA could not only preserve the value of your funds but increase it.

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Max Baecker is the President of American Hartford Gold, the nation’s largest retailer of gold and silver. He is committed to American Hartford Gold’s mission of helping clients achieve long-term financial security by providing them with unparalleled knowledge on precious metal markets and products.

Max specializes in helping clients build long-term wealth through the security and stability of precious metals. Under his guidance, American Hartford Gold has delivered billions of dollars’ worth of precious metals to thousands of satisfied clients.

American Hartford Gold is the #1 ranked gold company in the prestigious Inc. 5000 List of America’s Fastest-Growing Private Companies. It holds an A+ Rating from the BBB and a 5-Star Rating on Trustpilot with thousands of 5-star reviews. AHG offers investment-grade gold and silver coins and bars at competitive prices. Clients also benefit from its buy-back commitment with no back-end fees. American Hartford Gold is the only precious metals company trusted and recommended by Bill O’Reilly. To learn more, visit American Hartford Gold.

 Notes:

1. https://markets.businessinsider.com/news/commodities/gold-hits-record-high;-more-upside-likely-12428764

2. https://www.barrons.com/articles/gold-futures-price-51646649750  

3. https://www.kitco.com/news/2023-04-18/Investors-flock-to-gold-silver-bullion-to-protect-wealth-in-Q1.html#:~:text=According%20to%20data%20from%20the,first%2Dquarter%20performance%20since%201999.

4. https://www.cbsnews.com/atlanta/news/silicon-valley-bank-collapse-has-echoes-of-2008-heres-why-things-are-different-this-time/

5. https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/#citation-11

6. https://finance.yahoo.com/news/stocks-struggle-us-jobs-dry-023019982.html

7. https://www.zawya.com/en/markets/commodities/gold-ticks-up-as-dollar-softens-after-cooler-us-inflation-data-xe75cvhg

8. https://www.nbcnews.com/business/economy/inflation-rate-march-2023-is-it-better-or-worse-economy-rcna79150

9. https://investingnews.com/gold-price-rising/

10. https://www.cnbc.com/video/2022/12/20/gold-could-see-goldilocks-conditions-in-2023-strategist-says.html

11. https://www.gold.org/goldhub/data/2022-central-bank-gold-reserve-survey

12. https://www.kitco.com/news/2023-02-07/People-s-Bank-of-China-buys-another-15-tonnes-of-gold-in-January-third-straight-month-of-buying.html

13. https://www.cnbctv18.com/photos/world/super-gold-deposits-discovered-in-china-a-look-at-countries-with-largest-gold-reserves-16212641.htm

14. https://watcher.guru/news/brics-ignore-us-dollar-develop-new-currency-backed-by-gold

15. https://www.bloomberg.com/news/articles/2023-03-22/russia-says-gold-stash-grew-during-war-lifting-veil-on-reserves

16. https://www.cnbc.com/2023/03/22/gold-price-could-hit-high-amid-svb-credit-suisse-bank-problems.html

17. https://www.kitco.com/news/2023-03-14/Gold-s-3k-rally-The-missing-catalyst-is-here-banking-crisis-signals-economy-s-ebbing-tide-Bloomberg-Intelligence.html

18. https://www.kitco.com/news/2023-03-16/-Clash-coming-Worst-case-scenario-for-gold-in-this-supercycle-is-to-double-Wells-Fargo-is-watching-3-000.html