The U.S. Mint sold 147,000 ounces of American Eagle gold bullion coins in May 2022, the best May sales performance for the Mint since 2010. This sales figure is part of a 617% increase in demand for gold bullion since the start of 2022. Gold demand may continue to rise as concerns over economic volatility increase.
Economic indicators continue to signal a possible downturn for the economy.
The Atlanta Federal Reserve Bank’s GDPNow tracker suggests that the economy is on the verge of recession. The GDPNow tracker estimates the pace of quarterly economic growth as measured by gross domestic product (GDP). A June 7, 2022, update to the tracker shows that GDP fell from 1.3% to 0.9% in less than a week.
Inflation may be hampering economic growth. The Consumer Price Index, a key inflation measurement, rose 8.6% year-over-year in May 2022 according to data released by the Bureau of Labor Statistics on June 10, 2022. This is the fastest increase since 1981.
Testifying before the United States Senate Committee on Finance on June 7, 2022, Treasury Secretary Janet Yellen said that she expects inflation to remain elevated for a prolonged period of time.
Concerns over the economy are on the rise.
A survey conducted by The Wall Street Journal and researchers at the University of Chicago found that Americans have become increasingly pessimistic about the economy. Results from the survey, released on June 6, 2022, show that 83% of respondents believe the economy is “poor” or “not so good.”
Similarly, the University of Michigan’s Consumer Sentiment index fell to its lowest level in more than 10 years in May 2022, a reading of 59.1 out of 100.
This negative sentiment is reflected in how consumers have been conducting their finances. A survey of 11,000 individuals in North America conducted by Age Wave, Edward Jones, and the Harris Poll found that 63% of retirees say they “will now have to make some financial course corrections,” according to a May 27, 2022, article by The Wall Street Journal.
Gold demand may continue to rise as consumers seek to diversify their portfolios with safe-haven assets.
Demand for gold has increased as consumers have sought to protect their portfolios. Nitesh Shah, head of commodities & macroeconomic research, Europe, at fund management firm WisdomTree, explained in a note, “With fears of a recession rising, [consumers] are increasingly turning to gold as a hedge.”
Phillip Streible, chief market strategist at Blue Line Futures, echoed this sentiment, telling Kitco that “[gold] sales better reflect the anxiety [Americans] are feeling right now. When you hear economists talk about a recession, it starts to make sense why bullion sales are so strong. Gold will always be a long-term store of [wealth].”
This high level of demand has led some to predict that gold prices will rise. Gregor Gregersen, founder of Silver Bullion, explained to Bloomberg, “After decades of massive deficit spending and ultra-loose monetary policies, we are heading toward a period of stagflation. In this kind of environment, safe-haven assets like physical gold and silver are some of the best things you can own.” Gregerson predicts that gold will rally to $2,000/oz. by year’s end, which would bring it close to the all-time high of $2,072.49/oz. gold experienced in August 2020.
Greenlight Capital hedge fund manager David Einhorn also says gold prices could be set to rise. Speaking at the Sohn Investment Conference on June 9, 2022, Einhorn said, “The question is whether there’s enough gold to back the currency reserves. The answer is for the price of gold to go higher, perhaps much higher”; he later added, “Just wait until [the Federal Reserve is] forced to loosen into an inflationary spike to support the Treasury. At that point, it’s best to have some gold.”
Central banks are also increasingly looking at gold. A survey conducted by the World Gold Council between February 23, 2022, and April 29, 2022, found that nearly 25% of central banks from emerging-market economies are looking to increase their gold holdings. Bank of Portugal board member Hélder Rosalino explained the importance of gold for central banks to members of the press on May 18, 2022: “Gold is an important asset for central banks as it is a refuge asset and has no credit risks.”
As economic indicators and analyses continue to cause concern, consumers may continue to look to gold and other precious metals to help diversify and safeguard their portfolios.
Read U.S. Money Reserve’s “Market Insider” each week for more economic insights. Nothing herein should be considered as portfolio or retirement advice as U.S. Money Reserve (“USMR”) cannot and does not offer financial advice. Clients should consult a financial advisor for specific advice. This commentary is provided by USMR for informational purposes only and is provided on an “as is” basis without any warranty of any kind, whether express or implied. Your use of the information provided in this commentary is entirely at your own risk. In no event will USMR be held liable for any indirect, special, incidental, or consequential damages arising out of the use of information contained in this commentary.
