Is gold on the cusp of a new bull market?

Is gold on the cusp of a new bull market?

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(Kitco News) – There’s no denying that 2022 has been a tough year for gold. The precious metal was unresponsive to lingering geopolitical uncertainty, rising inflation and growing global economic turmoil.

Despite all the economic malaise, the gold market has fallen for the past six consecutive months. The disappointing gold price action sent bearish investors out in force as negative sentiment hit its highest level in four years.

The negative sentiment can be seen in recent headlines in the precious metals market. This week, ING commodity analysts noted that gold has been in a technical bear market since its March high. Meanwhile, BMO Capital Markets analysts cut their 2023 gold and silver prices by 6% and 11%, respectively.

However, before abandoning gold and silver, it is important to note that this negative sentiment never proved to be lasting. The last time the gold market saw six months of declines was from April to September 2018. After September, the precious metal experienced a strong uptrend that culminated with prices reaching a new high. record above $2,000 an ounce.

The same trend is also forming in the bearish speculative positioning of gold, which is at its highest level since December 2018. We’re not saying that gold prices will soon return to $2,000, but at some point given, investors will begin to recognize the value building of opportunities in the precious metals space.

If you’re looking for the spark that will ignite gold’s next bull run, you don’t have to look much further than the Federal Reserve. The US central bank’s aggressive monetary policy pushed real bond yields from around -1% at the start of the year to around 1%. This, in turn, pushed the US dollar to its highest level in two decades. These are two powerful headwinds for gold.

However, the Federal Reserve’s monetary policy is beginning to weigh on the global economy. Market analysts have noted that the extreme dollar strength is creating a significant imbalance in the global currency market. Over the past seven days, the Bank of Japan and the Bank of England have had to intervene in their respective markets.

Market volatility will only get worse as the Federal Reserve is relatively alone as the only major central bank to tighten monetary policy. Yes, the US central bank has an obligation to support the US economy, but can it continue to raise interest rates in a vacuum?

In a recent interview with Kitco News, Robert Minter, director of ETF investment strategy at abrdn, warned investors that the Federal Reserve has already made its policy mistake and the global economy is just waiting for the fallout. .

“A lot of people are on the sidelines waiting for something to break, and when they see it does, they’ll go for gold,” he said.

Minter is not alone; Ronald-Peter Stoeferle, chief executive of Incrementum AG, said the strength of the US dollar would lead to a deep and severe recession.

Gold still faces difficult headwinds, but in this environment there is a growing contrarian view that holding gold as a safe haven makes sense.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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