Four Reasons Why Gold Prices Have Been Moving Higher

Franklin Equity Group’s Steve Land discusses why the rally in gold that began in May is different from other rallies in recent years. He also gives his take on what it means for gold-mining equities.

Investor sentiment toward gold turned bullish in June, pushing gold spot prices to six-year highs in US dollar terms in July. As a result, there is excitement in the industry that, if prices hold, third-quarter corporate earnings results for gold miners may indicate a return to strong cash generation.

As long-term investors, we don’t make specific predictions on the short-term direction of gold prices or how long this current rally could last. However, we do see some potentially supportive market catalysts for gold and gold-mining companies.

Catalyst #1: Widening Expectations for Looser Monetary Policy

The shift in central-bank strategy around the world—from one of monetary tightening toward easing—seemed to be the primary trigger for the increased investor buying and recent move higher in gold. Lower interest rates present less of an opportunity cost to holding gold, as the metal provides no yield and often comes with storage and insurance fees.