All that glitters is getting pricier, but demand is not going away
NEW YORK (September 26) The gold market capped off another exciting week, pushing to within $10 of $3,800 an ounce; however, $4,000 remains the major target on everyone’s radar.
The precious metal continues to attract significant investor attention as confidence in the purchasing power of the U.S. dollar and other fiat currencies erodes. The U.S. government is potentially just days away from another shutdown if Congress doesn’t pass funding legislation by Sept. 30.
Even if Republicans and Democrats manage to strike a deal, the damage has already been done, as the U.S. government will continue flooding the market with Treasuries, driving debt higher. Although rising interest rates have traditionally been negative for gold, the question investors must ask themselves is: why are yields—particularly on the long end of the curve—rising?
As more investors and nations lose faith in the U.S. dollar, Treasury yields will continue to climb. In this environment, gold remains the last global monetary asset standing. This is why the latest rally comes as prices hover near record highs. Price means little when gold is treated as an insurance policy to protect wealth. Last Friday, the world’s largest gold-backed ETF, SPDR Gold Shares (NYSE: GLD), saw its biggest single-day inflows on record, with more than 18 tonnes. Despite renewed investment demand, global gold ETF holdings remain well below the record levels set in 2020.
Although the gold market may be overbought, many analysts emphasize that it is not overvalued, as central bank demand continues to provide critical support. At the same time, analysts expect China to continue playing a dominant role in the marketplace.
Commodity analysts at Société Générale noted that the People’s Bank of China is buying more gold than it officially reports. The French bank estimated that it has been buying about 33 tonnes of gold each month since 2022, excluding the six-month pause seen last year.
At this pace, SocGen expects the central bank could continue accumulating gold for the next eight years if it wants to build reserves comparable to developed nations.
But it’s not just gold that is benefiting. Investors who see gold as expensive are turning to other precious metals. Silver has reached consecutive 14-year highs for the last six weeks. The gray metal heads into the weekend above $46 an ounce, up more than 7% since last Friday.
This rally still appears to be in its early stages. Analysts at Sprott have said that growing industrial demand and dwindling supplies could put silver on a trajectory similar to palladium, which surged more than 500% between 2016 and 2021.
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