In the TV movie Rudolph the Red-Nosed Reindeer, Yukon Cornelius called himself the greatest prospector from the north. He would be thrilled to hear that this year’s gold bull run shows no signs of slowing down.
Gold is now worth more than $2,400 an ounce, which is a record high. It’s not a surprise that the popular SPDR Gold Shares ETF is also at its highest point. This year, gold and the gold ETF are both up about 17%.
So why does gold keep going up? Experts say that lower bond yields, a weaker U.S. dollar, and worries about politics around the world are all to blame. A lot of the same things are true for other valuable metals, like silver.
When the dollar is weak, gold usually does well. The dollar and the 10-year Treasury yield should both go down even more as long as the Federal Reserve plans to lower interest rates later this year. Gold, which doesn’t pay interest, benefits from lower yields because they make fixed-income investments less appealing.
This is good news because gold has a negative relationship with the U.S. Dollar Index and the dollar is losing steam, according to a report released by Ned Davis Research on Friday. The report also said that current yield trends should continue to support gold’s strong long-term upward trend.
Gold is also an asset that tends to do well as a safe haven when things get bad in the world. When the world seems less stable than usual, gold is more appealing than government-backed currencies and even Bitcoin because it can be seen and touched. There are also lots of things to worry about.
The war between Russia and Ukraine and the chance of a bigger war between Israel and Iran could make oil prices go up, which would mess up markets and make people less likely to spend money. Tensions between China and Taiwan could make it harder to make semiconductors and affect the tech industry as a whole. There is also the U.S. election for president in November to think about.
Fears about geopolitics aren’t going away on the eve of the US elections. Strategists at Société Générale said in a report that this should make central banks want to buy more. Gold prices have already gone up because central banks in China, India, Turkey, and other emerging markets want to buy a lot of the metal as a hedge against the U.S. dollar and market volatility in general.
There is even a famous fund manager, Michael Burry, betting on gold. He was right about the subprime mortgage crisis that caused Lehman Brothers to fail and the 2009 financial crisis.
This week, Scion Asset Management, Burry’s investment firm, told the government that it bought a piece of the Canadian closed-end fund Sprott Physical Gold Trust in the first quarter. At the end of March, Scion had a job worth $7.6 million.
