Is gold investing dead? And other questions for Trade Nation on the gold price

In a year dominated by Bitcoin ETF mania and equity market bullishness so far, the gold price has remained something of an enigma.

Invezz spoke to David Morrison, senior market analyst at financial services provider Trade Nation, with all the pressing questions about gold right now. Edited excerpts:

Many are currently saying ‘Bitcoin is the new gold’. And with the upcoming halving, some are saying ‘gold is dead’. What do you think?

The upcoming Bitcoin halving event this April is one of the main reasons given for the crypto’s rally this year. This halving reduces the rewards for Bitcoin mining and boosts its scarcity value. It’s a reminder, if one was needed, that Bitcoin supply is finite.

But there has been another factor boosting Bitcoin, and that is the regulatory approval of Bitcoin ETFs. This has led to a surge in uptake, just like the introduction of gold ETFs did to gold some twenty years ago.

What effect will the halving have on gold? I’m unsure. There’s no doubt that increasing numbers of investors are taking Bitcoin, and other cryptos, seriously now. In particular, the finite nature of Bitcoin could make it the ultimate safe haven.

…But it isn’t yet. It’s far too complicated for most investors to buy and hold, especially given counterparty risk. The alternative is some sort of derivative play.

In contrast, buying gold is easy, and its derivatives are tried and tested. That is one of the reasons that gold should continue to hold its allure, especially in times of uncertainty. 

What can we expect the gold price to do in the coming next week?

Difficult to say. From its mid-February low, under $2,000, to last week’s post-FOMC high, gold rallied 12%. This is without any significant pullback.

It is now consolidating below $2,200 with support coming in around $2,150. It could continue to trade sideways and rebuild upside momentum to rally further. But I would favour more of a pullback now.

This week’s Core PCE inflation could be the catalyst for such a move. If so, we’ll have to wait until next week to see the reaction as markets are closed on Good Friday.

Overall, I expect gold to rally significantly this year.

The gold and silver prices recently took a tumble. Why was that?

Unlike equity markets which have continued to rally, gold and silver fell sharply last week.

The move is consistent with the ongoing dollar rally. The Dollar Index has completely reversed its post-FOMC sell-off, and is trading above 104.00, a level last seen over a month ago. 

I think it was a necessary and healthy correction given the speed and size of its recent rally.

Having said that, the bounce-back in the US dollar, following the sell-off which greeted the FOMC’s dovish Dot Plot, was the trigger for the reversal. If the US dollar were to continue to strengthen, then this could provide a serious headwind for gold in the short term.

But I also think that investors shouldn’t pay too much heed of the apparent negative correlation between gold and the dollar. It may hold currently, but the relationship could easily fizzle if gold regains its upside momentum and begins to march to a different drumbeat.

Gold and the US dollar seem to be correlated right now. What do you see happening for the dollar this week, and how is that likely to affect gold's pricing?

Gold and the US dollar are negatively correlated at the moment. But that correlation is not set in stone. Gold is quite capable of rallying when the dollar rallies, and falling while the dollar does too.

But for now, a look at the charts suggests that the dollar could have further upside in the short-term, as gold continues to consolidate. That dynamic could continue throughout this week, particularly as there doesn’t appear to be any significant economic event or data point that could catalyse a big move.

But everything changes on Friday, with the release of the Fed’s preferred inflation measure, Core PCE. If it were to continue to trend downwards, then we should expect the probability of a June rate cut to increase, the dollar to fall and gold to rise. But if Core PCE were to tick higher, this seems likely to lead to a dollar rally and a pullback in gold.

But with markets closed on Good Friday, we’ll have to wait until Monday to see.