Gold Nears Record Levels as Debt Concerns Grow

In New York morning trade, we are looking at spot gold prices moving lower but holding at around $4600.

Now the precious metal rising to its highest level in over three months this week, with the debasement trade seemingly back on.

Now gold renewed rally coinciding with the national debt surpassing $40 trillion and billionaire Ray Daallo says that investors should buy gold because of the deficit.

Now joining me to discuss this and more is Joe Cavatone, senior market strategist and head of Public Policy US World Gold Council.

Joe, thanks so much for being with us.

Good morning.

How's it going today?

It's exciting.

It's going well.

Thanks for having me.

I'm always excited to be back and talk about the gold market, which, contrary to popular opinion, maybe 4 or 5 years ago, is probably one of the hottest markets for people to keep an eye on today.

So, let's start off with that.

Let's start off with this.

New renewed rally that we have going on, we saw spot prices drop below, I'm looking here about 4000 over the summer, but now we're back to three month high.

What's the reason for this rise?

So remember we had 162% return in gold up to January of this year.

Now what we're seeing are the fundamentals that we've been talking about keeping that gold price rising and those floors, those new floors, that 4000 level, the 3500 level, 4000 level.

That's coming back to be a very, very relevant and certain topic that needs to be addressed.

It's debt levels at the fundamentals for G7 nations.

It's how the US is going to deal with this shift in how inflation is actually developing, and more important than all, what's going to happen with fiat currencies and the debt that goes with that.

As a reserve asset.

All right, so this summer we also saw gold consolidate for a number of weeks.

So what does that actually say about the technical setup for the spike that we're seeing right now?

So I think people are looking at gold in two ways.

There's the momentum trade where they look at things that are like flare-ups around conflict, war in Iran.

But those things tend to push the price, and pull it back down.

Where we are today is we're actually setting back into a slow, steady climb that's actually based on this whole economic condition that's basically playing out around these big countries, and this debt level you talked to the $40 trillion is now a big number.

It's a big concern, and we're watching what.

And Marsh are going to do on their sides of the table to manage the concerns around that.

Can people buy these assets comfortably as a safe haven or the store of value that they need?

And will gold fill the role as a wealth preserving asset?

So I also want to talk about Jackson Hole because that is something that everyone is looking forward to on Friday.

It's the big talk of the town.

So what are you watching for?

From the press that's going to be happening and what exactly will this mean for gold?

Sure, I think what we're trying to keep a close watch on is exactly what the mechanisms will be for the control around inflation.

I know everyone's wondering if rates will be hiked or cut, but you need to see a little bit more detail around whether or not that definition and the understanding of how inflation.

Taking place in these markets will be reassessed by the Fed and they will look at things slightly different than we have in the past.

I think that's been a big shift in what we've been hearing and seeing around the globe.

We've had transitory inflationary pressures, but you have introduction of technology, you have changes in the way that people are living, debt levels, etc. and these are all having much more complex implications on inflation.

So I want to see if I can hear more from the Fed on how they're assessing the definition of inflation because then we'll be able to see more appropriately how they're going to look to the rate market to handle the pressures that come along with it.

So GLD is a popular gold miner's ETF.

So take us through the ETF inflows and what you're tracking with gold funds specifically.

So GLD, the Spider Gold shares, is just the spot price of gold.

So it's actually the perfect instrument if you want to invest in gold.

If you want to buy miners, there are other instruments you can buy, but this is actually the instrument.

Of choice for people who want to have price performance of gold, and what's driving it right now two factors.

Number one, the fundamentals continue to drive flows into ETFs this debt question and this concern around fiat currency and debasement, as you put it, but also a little bit of momentum.

People are anticipating what happened with the bond market on Monday, what's happening this week with the Fed and. and then the September FOMC meeting.

So they're kind of getting ahead of it.

So we see a little bit of that momentum pushing the price up too.

You can see that as well in options and those derivatives that are linked to speculation and calls on the the bull market, in particular in GLT.

All right, so I want to get your input regarding structural themes behind this specific rally that's going on.

The biggest theme I think people need to remind themselves of is when a central bank looks at its reserve portfolios on a global basis, particularly the 70 some odd that we survey on an annual basis, they see a need for wealth preservation, asset preservation, liquidity.

They're continuing to allocate the gold, so that's a big structural shift that we've had that we're not going to see that slowdown anytime soon.

And then secondly, I think again wealth preservation.

So people often talk of gold as a safe haven or where you go when you're worried.

Wealth preservation is actually the big key message we give to people.

I want to hold on to my assets.

I need a liquid asset that I can sell when risk assets are selling off.

That's where I think gold's role in the portfolio is increasing to shift, and that's why we've seen that steady climb in the gold ETF flows among certain instruments.

But the speculative flows are also weighing in.

I think keep an eye on wealth preservation and real assets, how they fit in the portfolios.

So I want to talk to you about your outlook for the next couple of months.

What are your thoughts on the outlook for the precious metal?

Three things I think are key to watch.

Number 1, keep an eye on how fiat currencies perform because that will have impact on the gold market.

Second, I think keep an eye on the big trends that we've just talked to, in particular central banks.

And then third, expect higher levels of volatility.

Gold is a huge market globally.

It can be speculated.

It's the largest with oil amongst commodity markets, so you've got a lot of players that are going to push the market around, pull it back and forth.

So don't get worried about the increased levels of volatility.

Just understand that structural shift is going to keep the market moving forward.

All right.

And even though it's a recession hedge, could gold coexist?

With record high equities, and if so, what assets are gold's biggest rivals right now?

I mean, there's a lot going on, so there is, there is, there are a lot of things going on.

So can it perform when markets perform well?

Yes, because wealth creation continues to contribute to gold's performance.

You might see an increase in jewelry and consumable assets continuing to play a role in the gold market if that is the shift that we see on a global basis.

And can it play a role with the competitive landscape right now?

Rs, higher rates, deposits, short term yields might be attractive to people on the shorter term, but the credit risk that comes along with those instruments is what keeps gold adding into the portfolio element.

And I think wealth preservation is the shift mindset that we have, not just safe haven worries about a market crash, wealth preservation, because that steady climb up with that structural shift keeps gold moving in the right direction.

Awesome, Joe.

Well, definitely interesting to see how gold progresses and see what's going to happen in the future, but thank you so much for joining us.

A pleasure to have you here.

Great to be here.

Thank you.

Thank you.