Gold Prices Under Pressure for Now, But Is That a Blessing In Disguise?
Gold prices have dropped recently. Year-to-date, the yellow precious metal has performed dismally. But don’t for a second overlook gold. It’s down, but it’s not out. Patient investors could reap immense rewards from the metal.
There are three big factors having a negative impact on gold prices.
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First, long-term bond yields have spiked recently, and gold prices tend to be highly reactive to these bonds.
Second, the U.S. dollar has rallied over the past few months. Gold drops in value as the dollar rises.
Third, risk-free returns are looking great these days. By this, I mean that investment vehicles like certificates of deposit (CDs) and short-term cash investments are paying decent returns. This also has an impact on gold prices. Why would you want to keep an asset that generates no “yield” when you can make five percent from other investments?
Gold Bars Selling Out
Now, let’s dig into why gold shouldn’t be ignored.
There’s something you probably don’t hear much in the mainstream financial press, but it makes the case for owning gold stronger. There’s currently a very rosy outlook for the demand for—and price of—the yellow precious metal.
Recently, Costco Wholesale Corporation (NYSE:COST) started selling gold bars on its web sites, and those bars have been selling out very quickly. That news came out not too long after Costco reported its financial results for the most recent quarter. (Source: “Costco Gold Bars Are Selling Out,” ABC News, October 4, 2023.)
The company’s executive vice president and chief financial officer, Richard Galanti, said about the gold bars, “When we load them on the site, they’re typically gone within a few hours.” (Source: Ibid.)
See what’s happening here? This is screaming that there are buyers for gold out there. Mind you, these gold bars have been flying off Costo’s shelves when the current investment environment says the yellow precious metal isn’t worth investing in.
Another thing worth noting is that the U.S. isn’t really known for its appetite for gold. It’s interesting to see how much demand there is for the metal in the country now.
India & China Keep on Buying Gold
Don’t get fixated on what’s happening at Costco, though; gold is a global phenomenon. The demand for the yellow precious metal in countries that are notoriously known for high gold appetites remains high.
For instance, gold imports have been surging in India. In August, India’s gold imports soared by 40%, compared to the same period a year ago. (Source: “ India’s Gold Imports Said to Jump in Risk to Wider Trade Deficit,” Mining.com, September 13, 2023.)
In China, another major gold-consuming nation, the demand for gold also seems robust. According to the Hong Kong Census and Statistics Department, 39.023 metric tons of gold were imported into China via Hong Kong in August. That was 51.4% higher than in the previous month! (Source: “China’s Gold Imports via Hong Kong Bounce Back in August,” Reuters, September 26, 2023.)
Gold Price Outlook: The Lower It Goes, the Better It Becomes
Dear reader, when it’s deemed one of the worst times to invest in gold, but you see roaring demand for the precious metal, it shouldn’t be overlooked. The current situation is making a very strong case for owning gold.
I think that, in the near term, gold prices could go down. There are many headwinds for the yellow precious metal: bond yields are soaring, inflation is coming down, and the narrative that interest rates will remain high for a long time is setting in. All of that could bring down gold prices.
Moreover, if we see a broad market sell-off in which investors panic and run to raise cash, it wouldn’t be shocking to see gold prices get hurt further.
I will end with this, though: the lower that gold prices go, the better the opportunity the yellow precious metal becomes. The case for $3,000-an-ounce gold prices hasn’t gone away, and it could happen much sooner than many think.
