Gold is not to become rich, but to stay rich ー ー or in inflation makes people bankruptcy from bankruptcy. Gold prices were heading for a record high on Tuesday, and could go even higher. Gold rose 2.1 per cent to $2,042 an ounce on Tuesday and is less than 1.5 per cent away from hitting its all-time high of $2,069.40 set in 2020. The shiny yellow metal is up 12 percent in the past month alone and 25 percent from its lowest point in November. Triple whammy for gold The price of gold is usually driven by three factors. 1. An ounce of gold is worth more when the dollar falls. 2. Gold does not generate any income, so falling bond yields mean less competition from gold. 3. Higher risk aversion would make the shiny metal even more popular as humanity’s oldest store of value. Gold has won a trifecta. Treasury yields have plunged in March, with the two-year note yielding about 3.8 per cent on Tuesday, down from a peak of 5.1 per cent early last month. Meanwhile, overseas bond yields have held up much better, which has dragged down the dollar. Natural gas has been a commodity loser, with precious metals bucking the trend. The trends reflect growing expectations of an end to interest rate rises by the Fed and growing fears of a US recession, which have coincided with turmoil in the banking sector this year. The looming debt ceiling fight adds to the potential for near-term turbulence, which could push those seeking a safe haven to increase their exposure to gold. Tuesday’s move above $2,000 pushed gold through a significant psychological barrier. Gold’s next move will depend on how expectations for Fed policy and the economy evolve. But with bond yields, the dollar and market sentiment all working in its favour, gold seems to have room to rise. Gold has historically been both a hedge against inflation and a haven in times of recession. It is also good news for companies that produce and sell gold. Newmont(NEM) — a stock Barron’s picked last fall — is up about 20% over the past month, and the VanEck Gold Mining ETF (GDX) has gained 28%. Gold mining stocks tend to be more volatile than underlying commodities. This is because changes in the gold price can have a dramatic effect on miners’ profits. It doesn’t matter if the price is $1,500 or $2,000, the cost of mining an ounce of gold isn’t going to increase. Still, spending by mining companies has been in the spotlight during the past few years of inflation. The management team said higher gold prices helped offset higher prices for Labour, diesel and raw materials used to mine and process gold. If gold prices continue to rise, expect gold stocks to continue to lead the way. $3,000 gold ahead? Gold bugs have always been a lonely lot, but that has been changing since last year. One of the best arguments against gold right now is flawed. Market strategists note that gold typically moves inversely to real yields, or Treasury yields adjusted for inflation. The argument goes that rising yields generally mean better economic conditions, which is negative for gold and raises the opportunity cost of holding gold, which doesn’t pay. Real yields rose rapidly as investors anticipated further Fed tightening, briefly turning positive for the first time since early 2020. But Jim Reid, head of credit strategy and thematic research at Deutsche Bank, says he is not convinced the bond market is much use in predicting future inflation. Instead, he calculates the real interest rate based on the consumer price index. Us CPI growth hit a 40-year high last year, and by this measure real interest rates remain deeply negative; Mr Reid expects real interest rates to remain negative for the rest of his career. The skepticism expressed by Mr. Reid that inflation has slowed enough is inspiring long-term investors in gold and creating new ones. Lawrence Lepard, managing partner at Equity Management Associates, is betting that gold will hit $3,000 an ounce within the next two years. He is skeptical of the consensus that inflation has peaked and doubts the Fed will be able to bring inflation down to its annual target of close to 2 percent. “I believe they will get nothing,” says Mr Leppard. He predicts the Fed will have to tighten monetary policy until the economy falters and markets force the central bank to shift to a more dovish policy. For many gold bulls, there is a second argument. Mr Leppard said the seizure of Russian reserves by the US would stimulate more demand for gold because it cannot be seized. Some on Wall Street are starting to think so, too. Analysts at Goldman Sachs expect geopolitical factors to drive a shift towards gold, with central banks seeing record demand for the metal this year. Joseph Wang, a former senior trader at the Fed’s open markets department, also said this made sense given the extreme risk aversion of foreign official sector investors. “Now that they see that their US dollar/US Treasury holdings may be sanctioned, they may hold more gold in their foreign exchange reserves,” Wang said. Even retail investors are showing greater interest in gold. Christopher Liitt of the Upstate Coin and Gold Center in Fayetteville says he’s getting busier. Consumers cited inflation and concerns about the US dollar, he said, adding that most of those buying large amounts of gold had experienced the inflation of the 1970s and 1980s, while Mr Litt said some younger customers were using money withdrawn from cryptocurrencies to buy gold. For some, bitcoin and other cryptocurrencies have upended gold’s status. Gold bulls say investors will inevitably realize that cryptocurrencies are no substitute for gold. Bitcoin may have stolen the spotlight from gold, but it’s a risky Asset for the same reasons many high-growth stocks have soared in recent years, said Peter Schiff, founder of Euro Pacific Asset Management. “As people realized that the currency is not in that role, as they think this demand will turn to gold,” he said, “the gold not to become rich, but in order to keep the rich ー ー or in inflation makes people bankruptcy from the bankruptcy.” Bitcoin’s 30-day correlation with tech stocks has climbed to about 70 percent, according to cryptocurrency research firm ArcanaResearch. For all the talk of bitcoin being “digital gold,” at least for now it’s still the “digital QQQ,” short for the popular ETF that tracks the Nasdaq 100 index, said Peter Boockvar, chief investment officer at Blakely Advisory Group. There is another reason to buy gold, and that is supply and demand. John Laphauer, head of real asset strategy at Wells Fargo Investment Institute, says gold supply is falling and is below its five-year average. Every time this has happened, going back to at least 1900, there has been a multi-year rally in gold prices, he said. Being a gold beetle is not easy. Instead of the twilight that many predicted for gold, though, they may see the dawn of a new day. Article | nicolas Gu Xinsi base, lisa, bell Edit | yuzhou Copyright Notice: Original articles from Barron’s China may not be reproduced without permission. In English, see report “Gold Prices Are Near All-Time Highs. 3 Reasons for the Rise.”, April 4, 2023. (The content of this article is for informational purposes only, and the investment advice does not represent a preference of Barron’s; The market is risky, so you should invest cautiously.