Can strong gold prices maintain momentum?

This article is sponsored by Sprott Asset Management USA and its [Resource Exploration and Development Limited Partnership fund]( or RED PP Fund for short. The RED PP Fund is a limited partnership offering that distills Sprott's global research efforts and private placement origination capabilities into a single investment vehicle. By pooling client capital under a disciplined investment rationale, the fund aims to provide participants with exposure to the resource and development sectors. This collective approach empowers the fund to dictate better terms on deals, which means there could be better returns for its partners. RED PP Fund has a limited number of slots, and they are filling up quickly. [LEARN MORE]( Dear reader, The collapse of Silicon Valley Bank (SVB) in March caused turmoil in the markets, leading to fears of a recession and a rush to gold as a real asset and a hedge against volatility. Many saw it as the push gold needed to gain some real momentum. From the beginning of March 10—when SVB crumpled—to the time of writing in mid-April, spot gold prices have risen almost 7.5% to over US$2,000 per ounce.[1](#_ftn2) It's the old, familiar pattern. Chaos ensues in the markets for one reason or another, in this case the biggest bank failure in U.S. history.[2](#_ftn2) The resulting instability causes U.S. Treasury yields to decline beyond the apparent control of market regulators, and the dollar grows shaky. Pundits begin to speculate whether the government will step in with quantitative easing or similar interventions in order to attempt to avert disaster. If so, the argument goes that the U.S. will devalue its currency. As investors anticipate this shift, gold becomes an ever more attractive store of real value, an actual asset to hedge against wobbly economic ground. But the question becomes, with gold up over 9% year-to-date, can the yellow metal maintain its current momentum? While no one can predict the future, there are a few key factors that lead us to believe that yes, the outlook for gold could remain sunny for the long term. However, there are headwinds to contend with. The first factor favoring gold is the general instability of the current market. Many experts were already anticipating a recession before the SVB meltdown. Following the collapse, a recession looms even larger: Goldman Sachs puts the odds of a recession within the next year at 35%.[3](#_ftn3) Geopolitical shock, compounding energy crises, and basic economics have combined to create a perfect backdrop for a potentially oncoming recession. that's bad news, but big market contractions tend to be good for gold: The first time gold cracked $1,800 was in 2011, in the wake of the Great Recession. Gold reached its all-time high of over $2,069.48 in 2020, as the economy reeled from COVID-19. In mid-April, the yellow metal has almost surpassed that, currently sitting over $2,036 per ounce. The second good indicator for gold is inflation. The latest 12-month data for the U.S., released back in February, showed inflation at 6%.[4](#_ftn4) In the latest round of quarterly economic projections, the Fed forecasts inflation to remain at a higher level than it previously expected. The Fed recently raised rates, but in the wake of the SVB collapse, it needs to ensure that it doesn't push too hard and spur further instability in the banking industry. High inflation tends to send some investors flocking toward so-called "safe haven" assets like gold, seen, again, as real assets in a turbulent market. And even when inflation shows signs of cooling, which it has done more recently, investors are moving into gold in anticipation of aggressive rate hikes from the Fed.[5](#_ftn4) The third positive factor for gold lies in the speedy response of the U.S. Treasury and Federal Reserve following the SVB crisis. As mid-sized banks reeled and consumers feared for their uninsured funds, the Fed and Treasury swooped in to protect depositors' investments..[6](#_ftn4) This shows a willingness to take active action in an attempt to stabilize the economy—which can devalue the U.S. dollar and thus improve the environment for gold. Of course, each of these factors depend upon big "ifs": if the U.S. fails to reel in inflation; if the Fed continues to hike rates; if the government either decides not to intervene in the next banking crisis, or that crisis simply doesn't materialize. All of this is uncertain. However, the sharper uncertainty becomes, the higher the price of gold usually climbs. We'll be keeping a close eye on it as all of the above unfolds. Want to participate in mining and exploration private placements? Sprott's Resource Exploration and Development Limited Partnership Fund. [LEARN MORE]( The RED PP Fund is designed to be a one-stop shop for resource investors interested in participating in high-risk, potentially high-reward private placements. It's a pool of capital that allows ordinary investors to leverage the experience of longstanding actors in the natural resource sectors, supported by Sprott's comprehensive research apparatus and considerable industry reach Important Disclosure Past performance is no guarantee of future results. Investments, commentary, and statements are that of the author. They may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this commentary are those of the author and may vary widely from the opinions of other Sprott affiliated Portfolio Managers or investment professionals. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Readers should consult their own accountants and/or lawyers for advice on their specific circumstances before taking any action. Views expressed regarding a particular company, security, industry, or market sector should not be considered an indication of the trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered investment advice, nor should they be considered a recommendation to buy or sell. Inflation could continue above the U.S.'s two-percent target for a long time, making holding real assets like gold and silver ever more attractive as a hedge against lower purchasing power. --------------------------------------------------------------- [1](#_ftnref1) [Link]( [2](#_ftnref2) [Link]( [3](#_ftnref3) [Link]( [4](#_ftnref4) [Link]( [5](#_ftnref5) [Link]( [Link]( Copyright © 2023 PrivatePlacements.com, All rights reserved. [Terms of Use]( and [Disclaimer]( You are receiving this email because you opted-in via our website, or have requested to be a subscriber. Our mailing address is: PrivatePlacements.com 422 Richards St. Suite 170Vancouver, BC V6B 2Z4 Canada [Add us to your address book]( Want to change how you receive these emails? You can [update your preferences]( or [unsubscribe from this list](.