COMMENT – Gold prices seem to have bottomed out


After gold’s weakest quarterly performance in around five years at the end of March, there are encouraging signs that it may have reached close to bottom.

By the end of the first quarter, gold was down 10% year-to-date and 18% below its record level of $2,067/ounce reached in early August. The catalyst for the slide was a sharp rise in US interest rates and a stronger dollar.

With US 10-year-treasury yields seeing the sharpest rise in thirty years, investor sentiment turned bearish towards gold with net long positions falling to its lowest level since mid-2019.

Despite this strong tide of negative investor sentiment, gold has held on at around its support level of $1.700/ounce. Its volatility has been far below risk assets typically seen during a downward trend, says the World Gold Council.

Indian and Chinese consumers are back

At the same time, consumer sentiment towards gold has returned with a vengeance in India and China—the two nations which account for half of gold purchases worldwide. American eagle coin sales saw its third strongest first quarter purchases during the period, while anecdotal evidence from Germany showed similar strong consumer purchases.

“We believe that the recent sharp increase in interest rates may level off as central banks continue to use monetary policies to keep them in check,” says the World Gold Council. “We also expect rising inflationary pressures to be supportive for gold over the short to medium term.”

Gold has traditionally been considered a hedge for inflation because the precious metal has historically been a store of value.

Bet on rate hikes may be too early

Paul Wong, market strategist with Sprott, notes that the US bond yields have risen by pricing roughly three rate hikes about a year earlier than the Fed’s outlook, along with a reduction in quantitative easing. “However, the Fed remains adamant that it will not raise rates until inflation is well and consistently above 2% as measured by Personal Consumption Expenditure inflation,” he said.

“Gold bullion is pricing in the early rate hike scenario despite the Fed’s stance,” Wong said, highlighting that gold was holding onto support levels despite the spike in yields and market expectations of rate hikes.

It added that the price action in gold would stabilise once it holds above $1,785/ounce, compared to the current price of $1,750/ounce. Wong also underscored that the US has in the last one year spent $5 trillion in fiscal stimulus and the Biden administration plans a further $4 trillion in infrastructure spending.

Though the market is currently focussed on near-term economic boost in spending on growth and yields, “there will be consequences down the road, intended or otherwise.”

“There is a shortage of historical examples of countries spending their way to nirvana. Moreover, the market is assuming the Fed will react or behave as it has in the past decades — being proactive in heading off any signs of inflation by increasing interest rates,” Wong said.

“Intuitively, this makes little sense—launch unprecedented spending and then shortly slam on the brakes?” 

He highlighted that equity markets have moved into a state of euphoria because of the unprecedented stimulus spending, while “gold bullion and gold equities are priced as if they are going into the ground.”

“We believe that the long-term precious metals bull market will regain its momentum,” Wong said.

Mike McGlone, analyst with Bloomberg Intelligence said that the probabilities are rising that a bounce in crude oil prices towards $70/barrel is done with and gold prices will catch up after their recent lows. Historically, higher crude oil prices support gold because of rising inflation expectations.

Biman Mukherji is a columnist and consulting editor at He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at

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