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According to Willem Middelkoop, chief investment officer and founder of Commodity Discovery Fund, the rise in prices for the precious metal this year to record levels is only a matter of time, and whatever prices are now, in three years, they will be much higher.
Even though prices have retreated from $2,000, it's not over yet.
Middelkoop said that the most important driver for gold is the growing shift in globalization. As the role of the U.S. dollar as a reserve currency weakens, the world is moving towards a multipolar system.
The U.S. sanctions against Russia have brought global financial markets closer to a major confrontation between Western and Eastern countries.
And while retail investors and the media, in general, may not realize it, at the highest level, central banks understand what is going on and are buying gold as a hedge.
Data from World Gold Council showed that last year, central banks worldwide bought 1,136 tonnes of gold, the highest level of registration since the 1950s.
"And when the central bankers start to flee towards gold, that's a very powerful sign that there's a major distrust in the heart of the financial system," said Middelkoop.
The leader in central bank demand for gold is the People's Bank of China, which has purchased 109 tonnes of gold since November. Most likely, China will continue to buy the yellow metal during the year. And the fact that it has begun to publish the number of its purchases again is to have the world notice that they have an international currency.
The global banking crisis, which have recently victimized Credit Suisse with UBS announcing on Sunday that it would buy the institution, has fueled more volatility in U.S. interest rate expectations.
Two weeks ago, everyone assumed the Fed would raise interest rates by 50 basis points. Now the hawkish forecasts are completely gone, and markets anticipate the U.S. central bank to leave interest rates unchanged.
Gold's first path to $2,000 began in 2019, when the Federal Reserve quickly cut interest rates, ending the 2015 tightening cycle. And that possibility is present now, as turmoil in the financial market will force the central bank to stop its aggressive tightening.
Once the $2,000 level becomes the new support, all the hedge funds and speculators will likley jump into the gold market.
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