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Gold SWOT: Gold is proving remarkably resilient, gaining almost 7% this year 

Gold SWOT: Gold is proving remarkably resilient, gaining almost 7% this year

  • Gold is proving remarkably resilient, gaining almost 7% this year as investors shrug off surging real yields and strengthening dollar to focus on political and economic risks. While traditional yield and currency drivers suggest bullion is overvalued, demand for the haven asset remains strong. That’s because gold buyers piling into exchange-traded funds (ETFs) are taking a pessimistic view of the U.S. Federal Reserve’s ability to cool decades-high inflation without hurting the economy. For them, gold is a hedge against soaring prices and low growth.
  • According to Credit Suisse, investors are more constructive on gold, despite still expecting higher interest rates. This is because of expectations of sticky high inflation, and the potential for Fed policy. A conservative approach by the Fed could lead to protracted high inflation, while an aggressive approach could cause a recession; either scenario would be positive for gold. Credit Suisse, assuming gold prices stay flat, also believes producers will be generating more free cash flow in the second half of 2022, at which point there may be announcements of higher dividends. Energy prices have increased significantly. Therefore, updated commentary on cost sensitivities at different oil prices, diesel hedges and the potential for overall cost per ounce to be at the high end/above guidance. As a reminder, energy is typically 5% to 10% of cash costs for gold miners.
  • Bank of America reiterated its bullish view on gold from February and sees prices advancing to $2,175 per ounce, according to technical strategist Paul Ciana. That is a 9.9% jump from Monday’s closing price and would be a new all-time high. “We think the daily, weekly and monthly timeframes still indicate higher gold prices this year,” Ciana says in a note.