Higher Gold Prices Show Investors Are Betting on Slower Rate Hikes

Gold prices are already moving 3% higher in 2023, which could mean that investors are expecting the U.S. Federal Reserve to slow down its pace of rate hikes. This clears the path for opportunities in gold-focused funds.

Last year certainly wasn’t conducive to a macroeconomic backdrop that would support higher gold prices. The Fed increasing interest rates in order to tame inflation pushed the dollar higher, which put downward pressure on gold prices.

“Gold is shining once again, as investors bet that cooling inflation in the United States will slow the pace of Fed rate hikes and make the precious metal more attractive,” CNN Business reported.

Trading activity in futures can provide an indication of where investors think gold prices will be headed. Thus far, it appears that the sentiment is relatively bullish.

“Gold futures were at an eight-month high, climbing 14% since late November to hit $1,882 per ounce on Wednesday (January 11),” the report added.

Central bank activity is also showing an increased demand for gold. The largest global economies are shoring up their coffers with the precious metal, adding a further catalyst for higher prices.

“We are seeing a lot of physical buying of gold from central banks. Not surprisingly, a lot of it is from Russia and China, countries that are keen to reduce their dependence on the US dollar,” said Caroline Bain, chief commodities economist at Capital Economics.

Alternate Gold Exposure

There are various ways investors can get gold exposure, including the physical ownership of gold bullion. An alternate and more efficient way is to consider the Sprott Physical Gold Trust (PHYS).

PHYS provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on a regulated market exchange. PHYS exclusively invests in London Good Delivery (LGD) physical gold bullion, held in custody by the Royal Canadian Mint, with no levered financial institution getting between unit holders and the trust.

Additionally, an alternate way to get gold exposure is via miners. As demand for gold increases, the potential for ancillary services that support gold (i.e. gold mining) also increases.

That said, investors may want to consider the Sprott Gold Miners ETF (SGDM). SGDM tracks the Solactive Gold Miners Custom Factors Index, providing exposure to value using a transparent, rules-based methodology that is designed to emphasize larger gold companies with the highest revenue growth and free cash flow yield, and the lowest long-term debt to equity.

For more news, information, and analysis, visit the Gold & Silver Investing Channel.