Despite the recent slump, gold prices have had a strong first half of 2023 with an year-to-date gain of over 5%, outperforming many other asset classes and commodities.
Still, we are still in the early days of the gold bull market, according to those at Goehring & Rozencwajg (G&R), a Wall Street investment firm.
“We think that gold has entered into a new phase of this bull market,” managing partner Adam Rozencwajg said during a recent interview with Investing News.
Rozencwajg bases this statement on the firm’s Q1 report, which pointed to two factors that prompted G&R to step back from gold in 2020 — first being that “the gold-oil ratio was favoring energy”, and the second being that silver had “caught up” to gold.
G&R now believes it’s time to step back in, mostly due to demand for gold being driven by central bank bullion purchases, which hit records in 2022 and the first quarter of 2023, as World Gold Council data revealed.
According to Rozencwajg, the new bull market phase began in the third and fourth quarters of 2022, “and it really revolves around central banks’ behavior as much as anything else. I think it’s going to propel gold much much higher in this leg of the bull market.”
Rozencwajg also points to geopolitics as a contributing factor to the central bank purchases. Due to the ongoing tensions around the world, many emerging economies are looking to diversify away from the US dollar in their reserve holdings and use gold as an alternative.
Russia, for prime example, can use gold to replace the dollar when making transactions with other countries to circumvent Western trade sanctions.
“The indications are looking like you will at least use some gold to try and balance any big trade surpluses or deficits,” says Rozencwajg, adding that “it would be very consistent with the activity that we’re now seeing amongst the central banks accumulating huge positions in gold in their reserves.”
Based on his analysis, Rozencwajg says “it’s only a matter of time before gold surpasses double digits on its way to $12,000-15,000 an ounce.”