Veteran trader sees key economic signal in surging gold prices

Gold surged to a record on Sept. 2, rising above $3,500 per ounce and surpassing its April peak. The precious metal has nearly doubled in value since early 2023.

Veteran trader cites uncertainty about interest rates, inflation

Gold was up 2.2% to $3,594.30 at last check.

Central banks worldwide are holding more gold than US government bonds, signifying a major shift in how countries manage their reserves.

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Analysts cite growing concern about Americas rising debt levels, which are prompting many central banks to be cautious about keeping too much of their reserves in US bonds.

“Gold roared to life, reaching an all-time closing high on Monday,” said TheStreet Pros Ed Ponsi in his recent column. “It was the fifth consecutive session of price increases for the yellow metal.”

Ponsi, managing director of Barchetta Capital Management, noted that it's been only two weeks since he placed a $5,000 target on gold, which he called a “long-term objective, one that could take years to achieve.”

He said that rising gold prices could stem from uncertainty about the direction of interest rates and inflation.

The Federal Funds Rate is about to fall, with the U.S. Federal Reserve expected to reduce that short-term rate 0.25 percentage point at its policy meeting Sept. 16 and 17, Ponsi wrote.

Meanwhile, inflation remains a question mark.

Ponsi noted that the July gauge of Personal Consumption Expenditures, the Fed's favored benchmark for inflation, came in as expected, as did that month's Consumer Price Index. But prices at the wholesale level, represented by the Producer Price Index, came in on the high side.

“It remains to be seen if Julys PPI was an anomaly or if inflation is truly on the rise,” he said. “The sudden, dramatic rise in gold prices could be a sign that the fight against inflation has yet to be won.”

Analyst: Precious metals are back in the spotlight

“Precious metals are back in the spotlight,” said Daniela Sabin Hathorn, senior market analyst with Capital.com.

“Macro drivers remain supportive. Recent U.S. data still point to a broadly resilient economy, but lingering softness in the labor market has markets leaning toward a Fed easing cycle beginning this month.”

For nonyielding assets like gold and silver, Hathorn said, the prospect of lower real yields is a tailwind.

“Add in geopolitical and tariff uncertainty plus the debate around Fed independence, and the case for strategic hedging has strengthened, weighing on the dollar at the margin,” she said.

Gold is traditionally known for its inverse relationship to the stock market, according to precious metals distributor U.S. Money Reserve.

“Historically, when stocks go down, gold goes up,” the company said.

“But as one of the best-performing assets since 2000, gold is more than just a safe haven in times of economic unpredictability. It has proven to be an essential part of any balanced portfolio in the long term.”

A caveat for investors from the CFTC

An important caveat for investors: The Commodity Futures Trading Commission warns on its website that gold and other precious metals are highly volatile and past performance is not a good predictor of future returns.

Banks and other big investors do buy gold, other precious metals, and commodities like oil, to hedge against inflation and other economic risks.

“Some investment advisers may even recommend that individual investors put small percentages of their diversified portfolios in precious metals, too. But that doesn‘t mean that gold or silver or other metals are ’safe places to park your wealth.”

The agency says that if sales pitches also include a lot of doom-and-gloom or high-pressure sales tactics, they could be setting you up for fraud.

The CFTC urges metals investors to check the bona fides of the sellers: “[Check] to see if the seller or firm is registered with the National Futures Association. If theyre not registered, they are likely breaking the law and you should submit a tip to the CFTC right away.”