Gold’s recent bullish run continues, as it reaches its highest level since January. What drives investors back to the yellow metal?
Gold had a strong comeback from its recent lows. After the yellow metal reached a new all-time high in the summer of 2020, it dropped several hundred dollars only to find support below $1,700.
Something changed there as investors began bidding for gold again. Perhaps the cryptocurrency market’s decline from the highs was responsible for the new interest in gold. Or it could be that inflation fears led investors to allocate a larger part of their portfolios to gold.
Regardless of the reason, gold, as well as other commodities, are benefiting from a lower US dollar and a strong economic recovery from the COVD-19 led pandemic. Corn and soybean prices have reached their highest levels in more than eight years. Moreover, the price of lumber increased over fivefold in less than twelve months, on the back of a boom in American housing.
Commodity prices, therefore, are through the roof, and April US inflation rose at the highest pace in four decades. Is the recent move higher in the price of gold the result of rising inflation fears?
Digital Assets Liquidation and Fears of Inflation – Key Drivers for Gold
An analysis of the CME futures contracts suggests that large institutional investors may shift away from digital assets back to the yellow metal. After gold reached an all-time high above $2,000 last year, it corrected while Bitcoin and other digital assets continued their rally.
However, the most recent correction in the crypto space wiped out a large part of those gains. Bitcoin lost over 50% of its value, while other coins experienced even steeper declines. The Bitcoin futures markets corrected the most since last October, and the outflows from the cryptocurrency market may have turned into inflows into the gold market.
Rising inflation is another reason for investors to worry. Gold has been the traditional hedge against inflation for such a long time that many traders are wondering why it would be different this time? Because the digital asset’s volatility is not favoured by institutional investors, the recent move higher in the price of gold may signal the yellow metal is back in favour.