A bullish catalyst for gold going forward is rising energy prices which, perhaps more than any single factor, underscore the extent to which inflation pressures are likely to persist, suggests Clif Droke, a specialist in mineral resources and editor of Cabot SX Gold & Metals Advisor.
Fund managers and institutional investors normally look at crude oil as a primary indicator for whether the broad outlook for commodities is bullish. When oil prices are soaring, they typically allocate more money to gold under the assumption that the inflation-sensitive metal will eventually respond positively to inflation.
Another factor is the likelihood that major foreign currencies, like the British pound and the euro, have bottomed after extended weakness. The U.S. dollar, meanwhile, is starting to look “toppy” after a long upside run. Strengthening foreign currencies and a weaker dollar should give gold prices an added lift since it would improve gold’s currency component.
After the recent technical improvement in gold, participants can buy a conservative position in the GraniteShares Gold Trust (BAR). The fund is my gold tracker of choice when gold prices are on the rise (due to its attractive per-share price).
I’m expecting increasing recession worries among investors to bolster gold’s demand profile. I suggest using a level slightly under $17.94 (the May 13 bottom) as the initial stop-loss on a closing basis.
I'm also recommending a new position in BHP Group (BHP) — a leading global producer of copper, iron ore, nickel, oil, gas, and metallurgical coal, as well as potash fertilizer. As such, the company is diversified across the broad metals and mining sector with lots of exposure to some potentially strong markets in the intermediate term.
BHP made headlines most recently after completing an oil/gas merger with Australian petroleum producer Woodside Energy (WDS). BHP got a further boost when Goldman Sachs reiterated its bullish outlook on the company based on BHP’s “major opportunity” to develop its copper reserves and resources (the largest in the industry).
Investors can purchase a conservative position in BHP around current levels using an initial stop-loss slightly under $63 (closing basis).