“Gold is going higher,” declares Barron’s in its April 25 issue. The investment magazine has been bullish on gold since 2018, but the latest article cites a host of new reasons gold’s gains have only just begun.
Leading the list is the argument that inflation is nowhere near peaking—even though it’s at a four decade high—and that the Federal Reserve will not succeed in pushing inflation down to its long-term objective of two percent before it begins lowering interest rates again. Many investors purchase gold as a hedge against inflation.
Greenlight Capital’s David Einhorn is quoted as saying, the Federal Reserve is “implementing a weak initial response (to inflation) that could exacerbate the problem.”
Gold is also benefitting from the freezing of Russia’s foreign exchange reserves that are held in U.S., Japanese and European banks. Analysts say the sanction will trigger central banks, particularly China, to add to their gold reserves, rather than buying dollars or other currencies.
Yet another factor cited by Barron’s is the powerful demand for gold coin sales, up nearly 50 percent last year. Demand is coming not just from older investors who lived through the high inflation of the 1970s and 80s. It’s also young investors buying, some of whom are selling cryptocurrencies to purchase gold, as they recognize that bitcoin and similar digital products do not provide a hedge against stock market volatility, evidenced by the high correlation between digital currencies and tech stocks, now at about 70 percent. Cryptocurrencies, argues veteran market watcher Peter Boockvar of Bleakly Advisory Group, is not digital gold, but “digital QQQ,” referring to the exchange-traded fund that tracks the Nasdaq 100.