This month, the World Gold Council (WGC) released a new edition of Gold Investor. What can we learn from the report?
The summer issue of the WGC’s Gold Investor contains a few interesting articles. The first one which we would like to cover is an interview with John Reade, the new WGC’s Chief Market Strategist and Head of Research. He believes that aside from the gold-market specific positioning and flow data the most important factors in the gold market are the moves in the U.S. dollar, real interest rates and the market-derived probability of interest rate hikes by the Federal Reserve.
“This probability, and specifically changes to this probability, appear to be having the greatest impact on gold at the moment, even more than moves in the US dollar. I suppose this is logical, as the US is in the midst of a hiking cycle after years of essentially zero interest rates. Typically, the probability of an interest rate hike increases to virtually 100% some time before it is announced and that rapid increase in probability sees gold under pressure.”
We totally agree with that and we provide our readers with regular updates on these factors. Aside from that interview, the recent edition of the WGC’s Gold Investor is dedicated mainly to gold in the FinTech era. Although the WGC considers Bitcoin and other cryptocurrencies useful for certain applications, it does not see them as alternatives to gold. And according to the WGC, modern technology is an opportunity rather than a threat for gold. For example, the blockchain technology could make the gold market more transparent by offering a record of transactions and holdings, or helping to track the yellow metal from mine to vault. Actually, the Royal Mint is using blockchain to deliver RMG, a gold investment product traded on a digital platform. Moreover, developments in FinTech could enable people to maintain a balance in gold rather than in cash and spend it, using widely adopted payment systems such as Master Card or Visa.
Given all these developments, the new technology may actually strengthen gold’s central role and improve its liquidity. We generally agree that cryptocurrencies are not necessarily threats to the gold market. Although there are some similarities – both gold and cryptocurrencies express the lack of confidence in national fiat currencies – they are different asset classes. Bitcoin is driven by speculative play in a small market, while gold’s market is deep, enjoying stability and safe-haven properties.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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