The Gold market has been discussed significantly in recent months. The metal has had a hard time avoiding declines as the Fed has stayed the course thus far and continued to raise interest rates aggressively. Now that the Fed has signaled it may slow the pace of further rate hikes, the metal has seen a shift in dynamics that have taken it higher. The metal now sits just below the key $1800 level, and is within a day’s push of retaking this technical level and setting itself up for more upside in the weeks ahead. Action in the gold market has been primarily a function of the Fed and its outlook for rates in the months ahead.
Although this has not been discussed much recently within financial media, there still exists a growing move away from the dollar. The U.S. currency remains the globe’s reserve currency of choice, but for how much longer is anyone’s guess. This week has seen some headlines that may be indicative of that move gaining steam. It was reported this week that the nation of Ghana is seeking to structure a gold for oil barter system to pay for its oil using gold rather than U.S. Dollars. It was then reported Wednesday that China has added some 32 tons of gold to its reserves, for the first reported addition to its holdings since 2019. This addition now puts China’s gold reserves at 1,980 tons.
Despite the fact that China’s announcement has seemingly come out of the blue, it is not at all surprising. Many analysts felt China was building its gold reserves throughout the year. The timing of this announcement may be far more important than the amount of gold purchased. The announcement of China’s addition to its holdings comes two days after increasing talk of gold for oil By Ghana. As de-globalization accelerates, many nations could look to amp up their commodity holdings and add more gold to their reserves. This would seem to suggest that the move away from the dollar is gaining more traction.
If global nations continue to move away from the dollar, the currency is likely to lose value over time. The dollar has been quite strong in recent months as it took its cues from the Fed, rising as the central bank raised interest rates. If the dollar were to reverse course at some point, however, the gold market could stand to gain substantially.
While a larger scale move away from the dollar will not happen overnight, the move is already underway. This week’s gold for oil talk is just the latest salvo in a battle that began years ago. Other nations have also begun looking for ways to transact outside of dollars. This has led to the establishment of credit lines and other vehicles for the transfer of funds between nations. This move away from the dollar could take years to come full circle, but when it does dollar holders better beware.
In the meantime, the gold market is likely to take its direction from the Fed and its plans regarding monetary policy. Jerome Powell recently suggested the Fed would slow the pace of its rate hikes. While that was cheered on by the dovish camp, Powell did also state that rates may need to remain higher for longer in order to get inflation under control. Powell may simply be trying to keep market expectations in line with likely scenarios, but he did seem to signal that a more dovish Fed may be seen in the months ahead.