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The Gold Market Continues To Ride A Wave Of Geopolitical Fear

Derek Wolfe

Updated: February 24, 2022

Gold commodities
Editor’s Note:

EDITOR'S NOTE: The Kitco article you’re about to read presents a bullish case for gold, correctly stating that the yellow metal is still in the early stages of a much longer rally and that in the long-term, it may end up leading the commodities sector in a multi-decade supercycle. The only issue we have with it is the way it inadvertently “cherry-picks” the data. Sure, gold has led the “averages” over the last two weeks. But if you pull out the individual commodities most impacted by the current Russia-Ukraine crisis, you’ll find that natural gas, crude oil, and wheat are far outperforming gold. So, let’s make our comparisons a bit fairer. Each of these commodities, individually, is topping the averages. However, gold is the only monetary asset among them. And it's the only asset among them that can protect our wealth over time, extending a gold market geopolitical fear trade beyond the scope of the current crisis.

The gold market continues to ride a wave of geopolitical fear, with prices holding new critical support above $1,900 an ounce. The precious metal could have further upside momentum as it has become a commodity sector leader.

In a note published last week, Nicky Shiels, head of metals strategy at MKS PAMP Group, said that gold has been outperforming the broader commodity index for the last two weeks. She noted that gold prices are up 5.5% in the last two weeks while the Bloomberg Commodity ex-Precious Metals Index is up 1.5%.

Tuesday, April gold futures last traded at $1,905 an ounce, up 0.27% on the day.

"That's a largely contrarian move as the market has favored all commodities ex-Precious for some time now," she said. "Clearly, this is a very bullish signal for gold, but it's just one angle. the key takeaway is Precious metals are at a steep discount vs. all other commodities with relative prices at their cheapest since these indices began, in 2009."

However, Shiels also warned investors that the rally in precious metal is still early, and there are a few criteria the market needs to see for the trend to continue.

Shiels explained that investors are jumping into broad commodities to protect against the rising inflation threat and to get exposure to the growing electrification trend and green energy transition. Shiels said that there needs to be a bigger rotation with the commodity sector, which would benefit gold and precious metals.

Shiels also said there needs to be more economic uncertainty, and a new crisis would benefit gold.

"Despite the decent performance recently, it's still early innings through a long-term lens (gold still looks technically boxed on a 10-year chart). But certainly, many of the drivers above are coming together and the more the market looks for a pullback, the more it just feels like it ain't happening," she said. 

By Neils Christensen

Originally posted on Kitco News.

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