Investors skeptical about the sustainability of gold’s recent surge need not worry, as new catalysts are driving the precious metal toward a potential rally that could see prices exceed $3,000, according to Dylan Smith, Senior Economist at Rosenberg Research. In a conversation with Financial Post’s Larysa Harapyn, Smith explained that the gold market is currently experiencing two distinct rallies, each fueled by different factors, suggesting that the bull market is just beginning.
Smith highlighted that the recent increase in gold prices followed the Federal Reserve’s substantial 50 basis point rate cut. He noted a shift in the dynamics influencing gold prices compared to earlier in the year, driven by strong demand from central banks and emerging markets facing high inflation. Countries like Turkey and India are contributing to this demand, supporting gold’s upward trajectory.
Moreover, Smith remarked on the changing landscape for gold exchange-traded funds (ETFs), which have transitioned from net outflows to modest inflows, indicating a growing recognition among investors of gold’s importance in uncertain economic times. He pointed out that while industrial demand for gold has recently weakened, signs of recovery are emerging.
On the mining front, Smith acknowledged ongoing challenges for miners in terms of profitability but indicated that steady output and rising costs could support gold prices further. He emphasized the potential for significant earnings growth in the gold mining sector as estimates are being revised upward in response to rising gold prices.
While Smith refrained from pinpointing a specific timeline for gold to reach $3,000, he asserted that now is an opportune moment for investors to consider adding gold to their portfolios, particularly in light of increasing geopolitical tensions. He concluded by noting that the anticipated weakening of the U.S. dollar, driven by the Fed‘s recent actions, will be another key factor in gold’s rise above the $3,000 mark. As of Wednesday, gold prices reached a new peak of $2,670.60 before settling at $2,660.06, reflecting a slight daily gain.
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