Over the last nine months, gold has rallied by $600 per ounce. That’s a 33% increase in only nine months. Over that time, prices have repeatedly jumped on news, or speculation, that inflation was falling or that the Federal Reserve would soon cut interest rates.
This pattern was repeated on July 11, when inflation data was released.
The Commerce Department reported that consumer prices in June actually fell from the previous month, and that the annual inflation rate had dropped to 3%. This good news was reinforced by dovish statements about interest rates from Fed Chairman Jerome Powell. In reply, market sentiment shifted with the conviction that the Fed would cut rates by September. Gold immediately added $40 on the news.
This rally is different from any other I’ve seen in my lifetime. The previous ones have been speculative spikes driven entirely by bad news—financial crisis, years of high inflation followed by spiking interest rates. These rallies came, then subsided. The rally following the Great Financial Crisis is an example: three years of gains, good wealth protection for sure, but much of those gains were given back over the next four years.
The present rally has been driven by a mix of good news and bad news.
Good news on inflation and interest rates, in addition to bad news related to political instability and geopolitical conflict, have both driven gold prices.
This mix of good news and bad has given these rallies legs. They've now been sustained for more than five years.
In an extraordinary run over the last five years, gold has established a series of new price floors:
- First, $1,500 per ounce in 2019,
- Then $1,700 per ounce in 2021,
- $1,900 and $2,000 in 2023, and back in March, $2,300 per ounce.
Now, this week, we broke through $2,400, doubling prices over those five years.
We’ll soon see if we’ve set a new floor. But, in any case, it's coming. With multiple interest rate cuts on tap for later this year and next, I expect the price floor to keep rising, just as we've seen over the last five years.
Why is this pattern of consecutive, higher price floors important?
Because it builds confidence that the rally reflects real fundamentals underlying the trend—that it’s not just a speculative bubble vulnerable to a sudden shift in temperament.
And we know what those fundamentals are—that they’re here to stay for the foreseeable future.
- Falling inflation and interest rates
- Massive gold purchases by central banks
- Economic and financial uncertainty in China driving tremendous demand from Chinese buyers
- Political uncertainty and instability here, in Europe, and elsewhere
- Growing fear of war—in Europe, the Middle East, the South China Sea, and the Korean Peninsula
This is a unique environment for owners of gold—one where they can benefit from price appreciation with good economic news while protecting themselves with wealth insurance against the sea of troubles that seem to surround us.
