Orchid Research believes recession fears will help gold's price trend continue.
In their latest analysis, precious metals firm Orchid Research went over some of the reasons that should push gold even higher between the second and third quarters. According to an article on Kitco, despite summer traditionally being gold's weakest period, the metal has seen tremendous price action over the past few weeks and continues to hold steady above the $1,400 level.
Most agree that the major inflows in gold stem from increasing fears over the global economy's state, as well as the Federal Reserve's policies. Orchid's analysts think we're in for a continuation of this trend over the next few months, as fears over a potential crisis persist.
According to Kitco, the report points out that gold has managed to hold strongly and move around six-year highs even against a robust dollar, illustrating the amount of appetite for safe-haven assets among investors. The analysts said that recession fears could very well drive gold prices even higher moving forward, especially in the face of the Fed's recent policy decision.
Nearly every tightening cycle in the U.S. has ended in a recession, and the Federal Reserve has been on a rate-hiking tear since 2015. However, Kitco reports that the force of their recent U-turn suggests that a likely upcoming recession could be more impactful than previous ones. Far from merely ending their hiking schedule, Fed officials immediately suggested that a lengthy period of rate cutting could be on the way.
This, according to Kitco, reinforced the view that U.S. growth is slowing down and that the era of optimistic investment is drawing to a close. President Trump's push for a more dovish Fed board, which include ample rate cuts and a potentially weaker greenback, only served to strengthen this notion.
The Fed's Treasury spreads model alone has steadily upped the chances of a recession occurring in the U.S., moving them from 29% in May to 33% in June. Many analysts are far more pessimistic when taking other factors into account and believe that a U.S. recession this year is a near-certainty.
Besides a fear-inducing growth slowdown, Orchid said that gold will keep benefiting from central banks' ceaseless increases in bullion purchases. Last year, the official sector blew away all forecasts by buying over 650 tons of physical gold combined. A major point of this development has been the re-entry of several countries whose central bankers have shown little interest in bullion over the previous decade. Orchid noted that the past few months have seen steady buying from nearly every emerging-market country, supporting the notion that central bank gold demand is ramping up heavily. China has recently served as the premier example of this, as the PBOC made a loud return to the gold market with 74 tons of gold bought in the first five months of 2019. In June, China's central bank showed no signs of slowing down by adding another 10.3 tons of gold to its reserves.
Orchid also noted that, at current prices, silver offers tremendous value to potential investors. Relative to gold, the metal currently sits at its cheapest point since 1992, providing a very interesting alternative proposition during a time of geopolitical and economic uncertainty.
