The price of gold surged to $2,020 per ounce on Tuesday, driven by the recent banking scares and concerns over rising inflation. This marks the third time in history that the precious metal has pierced the $2,000 level; the first was in August 2020, when gold reached its all-time high of $2,075 per ounce.
Experts view gold’s renewed favorability as a result of the market’s loss of confidence in the U.S. dollar.
“It’s happening because the markets are just starting to price in much higher future inflation than they incorrectly expected,” Peter Schiff, the CEO of Euro Pacific Asset Management, told The Epoch Times. “The Fed has lost its pretend fight against inflation.”
Despite Federal Reserve chairman Jerome Powell’s vows to maintain high-interest rates for “as long as it takes” to stop inflation, Schiff believes inflation may not ever recede back to the Fed’s target range.
“Inflation will remain significantly above 2 percent as far as the eye can see,” he said. “Gold needs to be repriced much higher to reflect that reality. The adjustment still has a long way to go.”
Gold and silver hit 52-week highs on Tuesday, rising by 2 percent and 3.9 percent, respectively. On a price-per-ounce basis, this translates to a $38 rise for gold and a $0.93 rise for silver.
A report from Citigroup predicts continued strength for the yellow metal, positing that gold may reach $2,300 in the near term. According to the report, “Gold has found itself on solid ground so far in 2023 ... as the U.S. dollar’s strength tapered and inflation abated slightly as oil came off its peaks.”
Economist Peter Schiff. Courtesy of Peter Schiff
Citigroup argued that deflationary forces—related to recession and bank failure risks—will drive investors toward gold as people search for low-volatility assets to store their wealth. They point out that—unlike fiduciary institutions—physical gold has no counterparty risk.
Some analysts theorize that increased demand at the governmental level has offered strong support for the price of gold.
“The latest rally in gold started in the fourth quarter on signs of sovereign accumulation,” wrote Adam Button in ForexLive. He called for a continuation of this trend “with Chinese and Russia buying increasingly likely as both countries—and perhaps some of the Middle East—grow weary of holding U.S. dollars after Russian reserves were frozen.”
Gold typically performs well during times of economic uncertainty. Its price briefly touched above $2,000 in early 2022, at the start of the Russia–Ukraine war.
The metal’s medium-term returns will likely hinge upon future monetary and fiscal policy decisions as well as the state of the U.S. banking sector going forward.
