Daily Gold Market Report

Gold Prices Decoupled from Real Interest Rates:
The New Economic Driver

(USAGOLD – 1/29/2024) Gold prices are higher in early trading Monday , driven by a surge in safe-haven investments following a terrorist attack in Jordan that resulted in the death of three U.S. soldiers. Gold is trading at $2035.39, up $16.87. Silver is trading at $22.99, up 19 cents. Frank Holmes, of U.S. Global Investors, recently wrote an article discussing how the traditional correlation between gold prices and real interest rates, a key economic indicator, has weakened according to BMO Capital Markets. Despite a strong U.S. economy, indicated by a higher-than-expected GDP growth and positive consumer and business sentiments, gold remains a recommended investment. This shift is attributed to several factors. Analysts believe gold will benefit from rate cuts and increased investment demand. Notably, emerging economies, especially China, are diversifying away from the U.S. dollar and increasing their gold holdings, making this the new primary driver of gold prices. Central banks, particularly the People’s Bank of China, have been buying significant amounts of gold, impacting the market. The article also mentions that Chinese households, facing a declining stock market, are turning towards gold, further supporting its demand. Despite potential risks from a possible equity market rally in China, BMO and analyst Colin Hamilton foresee continued central bank buying and household investment in gold as a multi-year trend, positioning gold as not just a safe haven but also a strategic asset in a diversifying global economy.