Gold’s 2021 has been surprisingly muted, but concerns about inflation are finally breaking gold out of its rut. The yellow metal is currently at $1,860.50, and the newfound momentum for the safe haven asset is likely to attract new investors. A price of $1,900 or more could be within reach in the coming weeks, according to a Citigroup note.
Chris Gaffney, president of world markets at TIAA Bank, is advising clients to increase their gold allocations to the higher end of the standard 5–10% range, according to the Wall Street Journal. “We’re really seeing investors say, ‘Well, this inflation could be a little more sticky, so we do need to add precious metals.’”
Gold’s rally comes despite a host of obstacles — most notably, strength in the U.S. dollar and tapering efforts from the Fed. Cryptocurrency enthusiasts have also been pitching bitcoin as a replacement for gold as a safe haven asset, even though bitcoin has never been tested during a prolonged downturn or inflation period. Egyptian billionaire Naguib Sawiris is bullish on gold as a safe haven asset. In remarks to the National News he said, “I’m still very bullish [on gold] and it is a safe haven. People now are comparing Bitcoin with gold; it’s a wrong comparison.”
Inflation has also hit the U.K. and the European Union. U.K. Finance minister Rishi Sunak said, “The recent period of above-target inflation is driven partially from base effects, rising commodity prices, global supply bottlenecks and shortages (particularly of semiconductors) and the increase in energy prices.”
Optimism for Gold Reflected in Mining Strength
Mining companies have also seen strength in recent days, with Barrick Gold (ABX) up 7.2% since last week. Barrick Gold is one of the key holdings in the Sprott Gold Miners ETF (SGDM). Gold miners tend to have more extreme reactions than gold itself, meaning that when gold is on an upswing, miners tend perform even better.
Sprott also offers the Sprott Junior Gold Miners ETF (SGDJ), which tracks junior gold and silver miners. Junior miners tend to have enormous upside potential as they become acquisition targets for larger firms and are particularly sensitive to the price of gold, which could be hurtling past its August highs in the coming months.
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