Q: What is your view of gold prices?
A: Gold is likely to do well for three reasons:
1) Gold prices typically perform well when nominal interest rates fall. Gold does not pay interest. So it becomes relatively less attractive as rates rise and more attractive as rates fall. Nominal interest rates are now falling for two reasons: a) inflation is falling and b) long Treasury rates are falling. Ironically, the more the Federal Reserve raises the overnight rate, the more likely a recession becomes so the more long-term Treasury rates fall.
2) The dollar is falling in value. As the value of the dollar falls, gold is worth more in terms of dollars.
3) The upcoming debates over raising the US debt ceiling could bring the country to the brink of default, undermining the value of Treasury bonds as risk-free instruments. Gold as a safe haven could gain ground on Treasury bonds as a safe haven in this environment.
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