Despite the gold market's recent stagnation (mind you; at peak prices across multiple currencies) to maintain its bullish momentum after hitting consecutive record highs, the rally isn't over.
While the slower pace of interest rate reductions might put a lid on gold prices in the short term as investors adjust their market outlook, ongoing geopolitical uncertainty continues to support the precious metal.
Geopolitical instability has significantly contributed to gold's nearly 30% increase this year. However, gold’s safe-haven status hasn't yet fully priced in current risks, particularly the rising tensions in the Middle East, where Israel's actions against Hezbollah led to retaliatory missile strikes from Iran, because markets have been propped up to ease participants' nerves.
If geopolitical tensions escalate further, which seems all but likely without substantial developments, gold could see another 10% increase as a safe-haven investment.
In that case, US$3,000 an ounce is not out of reach. If the Middle East conflict worsens, many pundits believe we could see US$3,000 per ounce before the end of the year.
Beyond short-term volatility, gold's long-term outlook remains strong as deeper, more fundamental factors come into play. Gold’s potential could fundamentally change the market landscape.
Some of the factors currently impacting the gold market are the same as 16 years ago. Issues like rising debt were always seen as long-term concerns, but now, those long-term concerns are becoming immediate. The accumulation of events over the last two years has significantly driven up gold prices.
Although gold has seen an impressive rally over the past year, this is only the beginning of a new bullish phase for the metal, because we haven’t even hit the euphoric phase where prices skyrocket.
The current supportive environment is unlikely to change any time soon. Even if the Russia-Ukraine war concludes, mistrust between Western and Eastern countries will likely persist. This ongoing distrust may continue to undermine the U.S. dollar as nations seek alternative trade agreements and diversify away from it.
The world is moving away from globalisation. The U.S. dollar won’t disappear, but its dominance is decreasing, and as nations look for alternatives, they will keep buying more gold.
Further, rising sovereign debt levels, especially the debt levels in the U.S., are reducing purchasing power. Despite the possibility that new political leadership will take over in the U.S. next year, neither major presidential candidate has made any real effort to address the ballooning national debt, now exceeding a whopping US$35 trillion, with the deficit expected to continue an exponential trend regardless of which party wins in November.
Central banks can’t keep rates high indefinitely, which adds more uncertainty around inflation. This factor alone will keep gold and silver in a bull market for several years to come.
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