Most traders were betting that the Fed would deliver a “hawkish hold” this past week. That meant the Fed would hold rates steady, but hint that more rate hikes were to come. That’s what happened...and yet, gold is showing stubborn strength. I can think of a few fundamental reasons why – and why you should own SPDR Gold Shares (GLD), suggests Sean Brodrick, editor at Weiss Ratings Daily.
First, crisis looms in Washington. The US government will shut down at the end of the month unless Congress can strike a budget deal in the next few days. Republicans have refused to raise the statutory debt limit unless President Biden accepts deep cuts in federal spending.
Why that matters: The last significant federal government shutdown cost the economy $11 billion. And speaking of money…the US national debt just whooshed past the $33 trillion mark.
You think that’s bad? Hold on to your hat. The debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account. A big reason is the fact that the Fed has yanked interest rates higher and higher, so the interest paid on the debt gets more onerous.
But not all the forces powering gold are due to the Fed and the debt. Data from August shows that central banks are rushing to buy gold at a rate not seen since the tumultuous 1960s. In fact, central banks now account for a third of all gold purchases. Here’s a chart showing their annual gold purchases:
According to the World Gold Council, gold purchases rose 152% year over year to a record 1,136 metric tonnes in 2022.
This buying frenzy is continuing this year. In fact, Q1 data for this year recently came in, and it was the highest Q1 ever — up 34% year over year to 228 metric tons. That’s a new record.
Why? Many of the central banks doing the buying are in countries at odds with the US. They are sick of Uncle Sam’s boot on their necks — a boot that is enforced with US dollars.
Now here’s a chart of the GLD. It’s an ETF that holds physical gold, so it tracks the price of the metal pretty well. You can see that the GLD is coiling up. A breakout could come soon. When it does, be ready to act fast.
Recommended Action: Buy GLD
