Investors in gold are partying like it is 1849, with the yellow metal hitting a record high above $2,440 an ounce Friday.
What is fueling the run-up in
? Experts think it has more to do with central banks’ buying, as opposed to individual investors looking to gold as an inflation hedge or consumers purchasing more jewelry and trinkets.
China has traditionally been a big buyer of gold and one fund manager thinks the People’s Bank of China has probably been more aggressive lately, particularly since it is trying to reduce the amount of U.S. dollars it holds in its reserves.
“Chinese demand remains strong as it continues to diversify out of dollars and into gold,” said Chris Mancini, associate portfolio manager of The Gabelli Gold Fund.
China may not be the only central bank scooping up more gold. Mohamed El-Erian, chief economic adviser at Allianz, wrote in a post on X Friday that more investors and central banks view gold “as a better hedge against geopolitical risks than government bonds due to US inflation concerns.”
Still, gold’s big move this year is a bit curious. Gold is a well-known inflation hedge because it is a physical asset with a limited supply. And even though stubborn inflation pressures haven’t gone away, the pace of price increases is still expected to decline as the year progresses.
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It is also worth noting that top gold mining stocks aren’t benefiting from the rising price of gold.
and
have lagged behind the metal’s rally. What is more, many top gold-backed ETFs have posted outflows for the past several months.
But Mancini said that if gold prices continue to climb, this trend could shift. Momentum investors might look to join the fun, putting even more upward pressure on prices.
“The rally could continue if gold-backed ETFs start to buy, or even if they stop selling,” Mancini said.
Technical factors could push gold even higher as well.
have been climbing along with gold—and that may continue.
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J.P. Morgan Securities technical strategists Jason Hunter and Marko Kolanovic wrote in a report Friday that “there is little in the price action that suggests the trend has run its course,” adding that a number of precious and industrials have rallied since mid-February.
With all that in mind, they think gold could climb as high as $2,575 this year. That is roughly another 6% upside from here.
Sure, that may not sound like much. But Hunter and Kolanovic also argued that gold’s march to record high levels likely triggered a fair amount of momentum buying.
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“One can envision a number of paths where gold can maintain a bid, either as an inflation hedge, the second order impact of a weakening dollar during a global manufacturing rebound, or a flight-to-quality hedge if…monetary policy finally starts to bite and triggers a growth slowdown,” they wrote.
In other words, there are lots of macro scenarios where gold can keep shining bright.
Write to Paul R. La Monica at paul.lamonica@barrons.com