Is now a good time to buy gold?

While gold is, as expected, being weighed down by rising real interest rates (long-term government bond yields minus medium-term inflation expectations), its price seems to be holding up remarkably well.

“The price of gold closed out August with a modest gain of 0.27% for the month. Over the two summer months, this represents a gain of more than 2% in the price. This brings the European investor’s return since the beginning of the year to +5.34% in euros,” states the latest report from the Comptoir National de l’Or. 

The reasons? Investors expect real interest rates to decline in the medium term and are already anticipating this upcoming shift by investing in gold. This analysis is confirmed by Lisa Shalett, chief investment officer of the wealth management division at investment bank Morgan Stanley: “Gold may hold its ground as an alternative currency, while the dollar is seen as vulnerable to a sharp decline,” due to “inflation and spending financed by a skyrocketing budget deficit.”

Consequently, over the medium term, the U.S. bank is a buyer of gold when prices fall or when interest rates drop. “A pause in the rise of interest rates—or a rate cut—is generally favorable for gold,” adds the Comptoir National de l’Or.

Another advantage of gold is that spending on the exploration of new gold deposits is showing a sharp increase. In 2022, $6.92 billion was spent on projects to explore new gold deposits. This budget, up 12%, accounts for more than half of the total exploration budgets for all metals, according to Standard & Poor’s “World Exploration Trends” report. About half of the gold exploration projects are led by small companies, while the other half are carried out by the industry’s major players.

While rising budgets might suggest an increase in resources and a rise in production that could weigh on prices, they primarily reflect a difficulty in finding new, easily accessible deposits. The number of major discoveries certainly remained stable between 2021 and 2022, but the amount of gold they contained was nearly halved, according to the U.S. agency.
 

One final point: analysts are closely monitoring central bank gold purchases. Libya’s purchase of 30 metric tons of gold—bringing its reserves to 147 metric tons (source: IMF)—has not gone unnoticed. Libya is a net exporter of petroleum products and is likely seeking to diversify the dollars it accumulates in foreign exchange reserves.
Including purchases by China and Poland (more than 20 metric tons each), as well as more modest purchases by Qatar (3 metric tons), Singapore (2 metric tons), and the Czech Republic (2 metric tons), total central bank purchases reached 55 metric tons in July, according to the World Gold Council.