Investing in Gold Is A Long-Term Play
The comments below are an edited and abridged synopsis of an article by Gold Eagle
Headwinds in the gold market are strengthening as bond yields rise, anticipating that the Fed will maintain its aggressive monetary policy.
This is challenging for gold and it could move lower; however, nothing has changed to shift gold’s long-term bullish potential.
To put gold’s price action into perspective, look at the bond market. Bond yields are rising again as persistently higher inflation could force the Fed to push US interest rates to 5.50% in the next few months.
What makes it more challenging for gold is that short-term bonds offer investors positive returns, making them attractive safe-haven assets again. However, there is where the trouble lies.
The US bond market is seeing the biggest inverted yield curve in 40 years. The US economy has been resilient, but that doesn’t mean the threat of a global downturn has abated. It is not a question of if a recession hits, but when it hits.
January inflation data come in hotter than expected, with the Consumer Price Index rising 6.4% for the year (6.2% was expected). Meanwhile, the Producer Price Index rose 6% on an annual basis (5.4% was expected).
Because of the latest inflation data, markets now expect the Fed to raise interest rates by 50 basis points next month. This shift is negative for gold in the near term; however, the more the Fed cuts rates, the bigger the recession threat.
Recently, billionaire investor John Paulson noted gold’s long-term potential. He said investors should follow the path created by central banks, which bought a record amount of gold last year.
Meanwhile, author Robert Kiyosaki posted another warning of an impending global recession on Twitter, saying that now is the time to buy gold, silver and Bitcoin.