Gold market braces for potential Fed pivot

The gold market is experiencing significant volatility as investors anticipate a potential Federal Reserve pivot.

Gold price surpasses $2,500 for first time ever…

“…Gold surpassed $2,500 per ounce for the first time in history on Friday in the wake of rising geopolitical tensions and new data indicating a weakening US economy…”#LEX #Gold https://t.co/DqRczkZhNA

— Lexington Gold Ltd (@LexGoldLtd) August 5, 2024

Brian Lundeen, a gold market veteran and CEO of the New Orleans Investment Conference, predicts that the reaction to an expected Fed policy change could be “truly explosive.

Yellow metal price jumps on renewed US recession fear

“…After a massive sell-off in the US stock market on Friday, this rally in the yellow metal is expected to extend for a few more sessions…”#LEX #Gold https://t.co/DAKKnhOAxj

— Lexington Gold Ltd (@LexGoldLtd) August 5, 2024

Lundeen states that the broader public and most investors are now pricing in the next big driver, which is a Fed pivot. This shift in sentiment is fueling the current rally in gold prices and could lead to unprecedented gains.

Price of #gold leaps near record, up 3.5% for the week as stocks sink, betting on the #Fed slashing rates soars following weak US jobs data https://t.co/c5rZ3ddvF7 pic.twitter.com/on6NKD57Al

— BullionVault (@bullionvault) August 2, 2024

The anticipation of rate cuts, a factor more easily understood by mainstream investors, coincides with continued buying pressure from central banks and Asian investors. Lundeen points out a unique situation where both Eastern and Western investors simultaneously increase their gold holdings, a rare occurrence in previous bull markets. “If we have Asian investors, the East, buying gold and the West buying gold at the same time, that’s going to be something that we’ve never seen before,” Lundeen explained. “The reaction in the gold price could be truly explosive if that develops.” Lundeen also sees a “generational window of opportunity” in mining stocks, particularly junior miners with large identified resources. He anticipates increased M&A activity, which could benefit well-positioned companies.

Gold’s potential Fed-driven rally

However, Lundeen addressed ongoing concerns about market manipulation, especially in the silver market. While not fully endorsing conspiracy theories, he acknowledged the potential for large players to influence prices, given the relatively small size of the silver market. On the global stage, Lundeen highlighted the significant trend of central banks accumulating gold while reducing their holdings of U.S. Treasuries. Although he doesn’t foresee the U.S. dollar losing its reserve currency status soon, he notes a gradual shift away from dollar hegemony. “The role of gold is rising in international finance, central bank finance, and monetary policy,” Lundeen observed. “That should be somewhat disturbing to the U.S.” Lundeen stressed the importance of due diligence for investors looking to capitalize on these trends, particularly when considering junior mining stocks. He emphasized the need to evaluate both management quality and project potential. As the gold market braces for a historic bull run, Lundeen’s insights suggest that the combination of an anticipated Fed pivot, global de-dollarization trends, and unique buying patterns could lead to an explosive reaction in gold prices. However, as with all investments, careful consideration of individual risk tolerance and thorough research remain paramount.