(Kitco News) – June is proving to be a disappointing month for gold and silver as prices continue to hover near their lowest levels since early March. Gold, in particular, is struggling as central banks worldwide are raising interest rates. This creates headwinds for gold, as it does not offer investors a yield. However, according to some analysts, the international hawkish stance will continue to provide long-term support for gold.
Central Banks Aggressively Raising Interest Rates
In an attempt to cool inflation, central banks are aggressively raising interest rates to slow the economy. This strategy has its risks, as central bank officials are aware that monetary policy is not a surgical tool but a blunt instrument. According to strategists like George Milling-Stanley, chief gold strategist at State Street Global Advisors, the real threat of a global recession will continue to support long-term gold prices, even if they correct lower during the summer.
Real Gold Demand Driven by South Korea and Central Banks
If you are wondering how real demand for gold is, you can look at what is happening in South Korea. Consumers can buy gold through vending machines, and sales are surging. Along with retail investors, central banks continue to see insatiable demand, with Poland pushing its reserves to record levels. Other central banks that bought gold in May included the Reserve Bank of India, the Czech National Bank, Russia, and the Kyrgyz Republic’s central bank.
Potential for Loss of U.S. Dollar Reserve Currency Status
In an interview with Kitco’s Anna Golubova, Leigh Goehring, managing partner at Goehring & Rozencwajg, said that the U.S. dollar could be on the verge of losing its reserve currency status. Leigh added that central bank gold demand will cause gold prices to blow through $2,000 an ounce. As to how much gold central banks will buy, Tavi Costa, portfolio manager at Crescat Capital, noted that central banks would have to buy about $3.2 trillion worth of gold to boost levels back to where they were 40 years ago.