Long-Term Upside Favors Gold Despite Recent Pullback

The Federal Reserve keeping rates unchanged may have caused gold to retreat. But the long-term trend still favors more upside in the precious metal. So far this year, it’s up more than 11% and could continue climbing.

The capital markets still expect the Fed to eventually loosen monetary policy and cut rates. But the higher-for-longer inflation narrative continues to place those plans on hold. Nonetheless, the overall sentiment in the metal’s trading errs on the side of bullishness.

“Gold price surged over $30 an ounce after the US Federal Reserve (Fed) adopted an overall easing bias at its May policy meeting on Wednesday,” said Joaquin Monfort, European Editor at FXStreet. “Gold bulls bid up the price after the Fed decided to leave interest rates unchanged and to slow the pace of reduction of its US Treasury holdings, a mildly dovish move as it unwinds quantitative tightening.”

What’s Driving the Yellow Metal’s Purchase

Adding to the hope of rate cuts is the prospect of no more interest rate hikes. That should help keep the precious metal afloat and prevent a steep decline. This would allow investors to come in and buy the dips.

“In his prepared remarks, Powell dropped any reference to reducing interest rates this year, and sidestepped questions about whether the Fed would still be cutting rates in 2024, in the Q&A,” Monfort said. “Yet, although the overall takeaway was that rates were not coming down any time soon, additional rate hikes were not on the table either.”

Speaking of investors buying dips, both the central bank and retail investors continue to drive purchases. The World Gold Council noted that the first quarter saw no decrease in central bank yellow metal purchasing. Its first-quarter rally also saw more retail investor purchasing. The WGC mentioned that “buying by investors, while opaque, is reflected in the pace and scale of the price rise.”

Two Gold Exposure Options

Heading deeper into the second quarter, prospective investors of the metal may want to consider exposure via the Sprott Physical Gold Trust (PHYS). The fund offers exposure to the metal without the inconvenience of having to store physical gold. However, investors retain the option of converting their shares of the fund into physical bullion.

Additionally, an alternate play on the metal’s prices via ancillary gold services like mining offers opportunities in the Sprott Gold Miners ETF (SGDM). The ETF seeks investment results that correspond generally to the performance of the Solactive Gold Miners Custom Factors Index. This index tracks the performance of large gold companies found on Canadian and major U.S. exchanges.

For more news, information, and analysis, visit the Gold/Silver/Critical Materials Channel.