The macroeconomic environment continues to center around inflation. It could either push investors to purchase more gold or accumulate riskier assets, depending on the latest inflation report.
Lately, gold has been floundering as stocks and bonds continue to see upside after last year’s tumult. If the inflation report shows that prices aren’t yet subsiding, it could push the U.S. Federal Reserve to continue raising interest rates and push the dollar higher.
“The dollar is reverting, and the Fed remains hawkish, which is weighing on gold,” said RJO Futures senior market strategist Frank Cholly, per a Kitco News report.
The Fed has already noted that getting inflation under control could take some time. As such, more pain in the form of higher interest rates could come, but the question remains of how much is the economy willing to tolerate tightening with respect to monetary policy.
“We are seeing that effort begin to pay off, but we have farther to go,” said Federal Reserve Governor Christopher Waller, per a CNBC report. “And, it might be a long fight, with interest rates higher for longer than some are currently expecting. But I will not hesitate to do what is needed to get my job done.”
Heading into 2023, the capital markets were brimming with optimism that interest rates would eventually go down. However, this may not come as quickly as anticipated.
“Some believe that inflation will come down quite quickly this year,” Waller added. “That would be a welcome outcome. But I’m not seeing signals of this quick decline in the economic data, and I am prepared for a longer fight to get inflation down to our target.”
2 Options for Gold Exposure
Investors who want gold exposure have options as opposed to simply buying physical gold directly. One option is the Sprott Physical Gold Trust (PHYS), which is a fund that provides an enhanced physical bullion structure, offering the ease of purchase and sale that comes with being traded on an exchange.
For investors who want gold exposure with an environmental, social, and governance (ESG) component can consider the Sprott ESG Gold ETF (SESG). The fund directly sources from select gold producers that Sprott believe are leaders when it comes to ESG mining and sustainability.
SESG adds a backdoor play on gold prices, investing in ancillary services that support the gold market as opposed to the actual precious metal itself. In addition, the ESG component gives conscious investors an opportunity to allocate capital to gold miners exhibiting ESG-friendly operations.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.