Gold Rises as Investors Seeking an Inflation Haven Pour Into Gold ETFs

5.11.22 - 'Nowhere Near the Bottom' -Economist

Gold last traded at $1,852 an ounce. Silver at $21.58 an ounce.

NEWS SUMMARY: Precious metal prices rose Wednesday on safe-haven buying and a weaker dollar. U.S. stocks traded mixed as investors tried to look past the latest data showing U.S. inflation hovering near 40-year highs.

Barron's--"Gold didn't get the message that higher interest rates mean lower prices for the yellow metal.

The Federal Reserve raised rates by a widely expected 50 basis points (a half-percentage point) on Wednesday, signaling a series of rate hikes this year and a plan to reduce its balance sheet. Although gold slipped immediately after the Fed's move, prices resumed their climb on Thursday, and gold-market watchers say the metal still has more mettle in it.

What matters for gold are 'real' interest rates - those calculated by subtracting the inflation rate from the nominal rate. The federal-funds rate is now 0.75% to 1%, but the March consumer price index put inflation at 8.5%, so real rates remain well in negative territory.

Will Rhind, chief executive of GraniteShares, issuer of the $1 billion GraniteShares Gold Trust exchange-traded fund, says that gold has an advantage over cash and bonds if nominal interest rates are positive but the real rates remain negative, since gold isn't losing value.

The gold market had priced in a 50-basis-point hike on Wednesday, Rhind says, which is why prices slipped modestly then and rebounded on Thursday. Gold actually made a new high for the week on Thursday, rising above $1,900 an ounce....

Fed Chairman Jerome Powell signaled that '50 basis-point increases should be on the table at the next couple of meetings' of the Federal Open Market Committee, but that pace of increases isn't hawkish enough to pressure gold significantly, says Adrian Day, CEO of Adrian Day Asset Management, which specializes in resource investing....

'The most aggressive projections of Fed actions over the next 12 months will get the Fed to about 3.4%. Inflation is at 8.5%. At the end of this so-called hawkish Fed's first year of tightening...we will be more deeply negative in real terms than we were in 1975-76, at the beginning of the great inflation of the 1970s,' Day says....

'The Fed is thinking that inflation is going to be barely 4% by the end of the year. I think they're living in cloud-cuckoo land,' Day observes."