Joe Cavatoni, a Chief Market Strategist in the North America division at the World Gold Council, believes gold will show solid support throughout the remainder of 2023. In an interview, Cavatoni explained that gold’s performance for the first half of the year proved its ability to remain resilient in periods of high-interest rates. Even with the hawkish Fed actions, gold managed to reach a high of $2,055 earlier this year.
“Gold has basically had a fantastic performance for the first part of the year, considering that rate-hiking environments are usually headwinds for the market,” he explained. Despite this, gold has grown by about 5% to 5.5% year-to-date, marking an exceptional growth rate.
With that being said, Cavatoni and many other market analysts believe we’re receiving indications of reduced interest rates in the near future. The Federal Reserve has finally begun sending signals that we’re nearing the end of the rate-hiking cycle.
“What that will mean is we will start to see the repercussions of those rate hikes feed into the economy. When we see that develop, we will see whether we’re entering a recession environment, a softening of the U.S. economic environment, or if the Fed can actually land a pretty strong soft landing, and, ultimately, we’ll see how that plays out,” Cavatoni explained.
How the Fed’s efforts actually affect the economy remains highly up for debate, though how they will impact the gold market seems a bit more clear. Most analysts, including Cavatoni, agree that the end of the rate-hiking cycle will offer positive performance rebounds for gold, regardless of the upper-level economic impacts.
“Now, what does all that mean for us?” Cavatoni continued. “It means that the environment for safe-haven assets will continue to increase if we see those types of environments where the recession and the economic strain on the U.S. economy develop.”
As risky assets continue weakening, like U.S. treasury yields and the U.S. dollar, it only makes sense that safe-haven assets, like gold and other precious metals, will take over the performance rates.
As of right now, most are expecting further rate hikes, at least for July, to combat the lingering inflation still catching up from previous factors. Cavatoni believes inflation may continue developing throughout the second half of the year, though gold managed to show excellent performance in the first half of the year despite the aggressive levels of inflation.
Considering the banking crisis in March offering gold’s highest pricing level of the year before solid support above $1,900 for months, gold has shown its ability to carry strong in any economic environment, proving its name as a safe-haven asset.
“So you have a 5.5% return rate year-to-date and indications that if we land in the U.S.-type of economic recessionary environment… you’ll see gold having that strong performance again because the flight to safe-haven will play out,” Cavatoni explained.
The latest U.S. jobs data release proved we may already be heading in this direction, with figures significantly dropping below market expectations, signifying the potential need for further Fed actions beyond July.
Gold doesn’t just gain its pricing performance rates from the U.S. economy, though; it’s a global asset. Factors from European developed markets, foreign rate-hike cycles, and recessionary levels around the globe will all affect gold prices just as much.
Credit tightening, a weakening U.S. dollar, and risk-off environments moving into the second half of 2023 would create a positive landscape for gold to continue thriving. The de-dollarization trend remains prevalent as we progress through the year, positively impacting the precious metal’s performance rates. On a global level, we’re seeing strong levels of diversification moving away from the U.S. dollar as the U.S. economy continues weakening.
As central banks move away from the U.S. dollar, they move toward gold. The de-dollarization trend is just another factor pushing gold prices upward, according to Cavatoni.
“You’re seeing people moving moneys away from dollar-based assets and diversifying into safe-haven assets or assets that won’t necessarily be so hitched to the U.S. economy, like gold,” he explained. “Gold’s definitely been the recipient of a move away from dollars in reserved portfolios, for sure.”
With all these factors considered, Cavatoni believes that investors can expect to see more strong support for gold throughout the remainder of the year. The precious metal showed excellent performance rates at the beginning of 2023, despite significant pressures from numerous sources. As we head into what may be a better environment for safe-haven assets, we can expect even better performance rates.
As always, investors should consult their advisors before making any portfolio decisions.