Key Takeaways:
- Gold spot price climbs over $2K.
- The precious metal funds see significant inflows amid the banking crisis.
- As a result, experts believe the gold price will still climb higher.
YEREVAN (CoinChapter.com) – Spot gold declined 0.1% to $1,940 an ounce on March 22, two days after establishing a local peak near $2,010, the precious metal’s highest level in a year. Overall, gold is up nearly 6.5% year-to-date.
Meanwhile, given the instability of the US banking system, the domino effect of the massive bank run from Silicon Valley Bank, and the Credit Suisse fiasco, investors seek to hedge their funds and turn to hard assets, such as gold.
As a result, the inflows to gold-based exchange-traded funds (ETFs) and exchange-traded commodities (ETCs) have soared near all-time highs.
Gold Run Begins
According to the March 17 statistics, ETCs tracking the yellow metal responded accordingly to the XAU price appreciation.
For instance, the $15 billion iShares Physical Gold ETC (IGLN) and the $3-billion Xtrackers Physical Gold ETC Securities (XGDU) rallied 5.7% over the week starting March 13, while the $572-million WisdomTree Core Physical Gold ETP (WGLD) surged 6.1% in the same period.
Gold mining equity ETFs enjoyed an even more inflow.
The $73 million-worth Market Access NYSE Arca Gold Bugs UCITS ETF (GOLB) surged over 12%. The $156-million L&G Gold Mining UCITS ETF (AUCO) and the $789-million VanEck Gold Miners UCITS ETF (GDX) surged 12% and 10% over the same period, respectively.
One of the most popular European gold ETCs, BlackRock’s IGLN, saw $71 million worth of inflows March 13-17. Meanwhile, the largest European ETC, the $15 billion Invesco Physical Gold ETC (SGLN), added $228 million.
Also read: Bitcoin is No Safe Haven in Ongoing Banking Turmoil.
Furthermore, according to several experts, gold prices will continue to rise in 2023 as long as the banking turmoil continues. The interest rate hikes announced during the upcoming FOMC meeting will also greatly influence the markets and the future gold spot price.
New Peak for Gold Ahead? Experts say YES
Nitesh Shah, Head of Commodities and Macroeconomic Research at WisdomTree, a European specialist provider of commodity ETFs, agreed.
While the jury is out on whether the Federal Reserve will pivot its monetary policy early (the Federal Open Committee meeting is scheduled for 21 – 22 March), investors are seeking to protect themselves with hard assets.
said Shah.
Also read: Banking Turmoil: How Biden’s Presidency Could Be Under Threat from Political Risks.
WisdomTree experts also argue that while gold’s recent gains are well supported, a broader market meltdown could spike short-term gold selling to raise liquidity for meeting other obligations such as margin calls.
The odds of more gains were apparent before the banking collapse
Before the banking system fiasco, several experts also forecasted a bullish year for the precious metal, as the war in Ukraine and record energy prices left the global economy battered. For example, Ole Hansen, head of the commodity strategy at Saxo Bank, predicted a rise in gold spot price in 2023 to continue.
In general, we are looking for a price friendly 2023 supported by recession and stock market valuation risks. The de-dollarization seen by several central banks last year when a record amount of gold was bought looks set to continue, thereby providing a soft floor under the market.
said Hansen.
Nikhil Kamath, the co-founder of India’s largest brokerage Zerodha, agreed. He said investors should allocate 10% to 20% of their portfolio to gold, adding that it’s a “relevant strategy” in 2023.
Gold has been inversely proportional to inflation, and it has been a good hedge against inflation. If you look at how much gold you required to buy a mean home in the 70s, you probably require the same or a lesser amount of gold today than you did back in the 70s, the 80s, or the 90s.
commented Kamath
The yellow metal has historically been one of the most reliable safe haven assets to turn to in economic distress. However, as the price spiked merely 4% lower than the 2022 peak, the rally paused in anticipation of the Federal Reserve’s interest rate decision on March 23. The Fed’s decision on interest rate hikes will determine the outcome.
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