Gold prices pull back on end of quarter profit taking – What’s next? [Video]
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Gold is everyone’s favourite trade when terms like “Crisis”, “Credit Crunch” and “Recession” begin dominating the headlines – just like we're seeing right now.
The precious metal has been on an unstoppable run, rallying from the $1,800 level at the beginning of March to above $2,000 an ounce – not once, twice but three times this month – notching up an impressive gain of over 10%, its biggest monthly gain on record.
Following four consecutive weeks of gains, Gold prices have pulled back on routine end of quarter profit-taking as traders square up their positions – ready to capitalize on the precious metals next big move.
Is the rally over and has all the money been made?
Not by a long shot!
A few weeks ago economists were convinced the global economy was powering ahead. Now they predict a deep recession is on the way – as a domino effect of the collapse of several prominent banks from Silicon Valley Bank to Signature Bank as well as the disorderly implosion of Credit Suisse.
When the macroeconomic conditions change this rapidly, so does the market narrative.
Banking crises are almost never resolved in weeks or months. The consequences can last for years, if not decades triggering a sequence of events, which can send the economy spiralling from crisis to crisis.
As a result, this month the market narrative has shifted from "no landing" to "hard landing". This in itself presents, a huge bullish tailwind for precious metal prices in 2023.
But here’s where the bullish case for precious metals gets even stronger.
When banks face instability, as they are now they tend to become increasingly conservative. They’re more selective with loans and they often increase the interest rates on the loans they do offer.
These tighter lending condition can makes capital extremely difficult to come by for individuals and businesses – in other words: sparking a global “Credit Crunch”.
Last week, Fed Chair Jerome Powell confirmed that banking industry stress could trigger a “Credit Crunch” with significant implications, resulting in stricter lending making it extremely harder for individuals and businesses to qualify for loans, mortgages and credit. Powell concluded by saying “tighter lending conditions will have the same unintentional slowing effect on inflation that a rate hike can have”.
This scenario has traders convinced that the Fed will cut interest rates later this year. Interestingly, as the Fed inches closer to the end of their current rate-hike cycle, the ECB has only just started. ECB rate hikes will enviably strengthen the Euro and inversely weaken the U.S dollar, which in itself presents, yet another bullish tailwind for precious metal prices ahead.
Whichever way you look at it, one thing is clear. The case for Precious metals in a well-diversified portfolio has never been more obvious than it is right now!
Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:
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