Nearlydun, there is always devil in the detail which requires deep analysis. The aggregate factors need to be broken down so you can position yourself. The outcome depends on which country or countries or trade block you are talking about, because there are a variety of reasons and different inflation rates around the world with differing capacity to raise interest rates because of debt or they are a commodities exporter like Australia who can, relatively speaking, ease the pain. The OECD says Australia won't go into recession.
Bear in mind, it was other central banks around the world who have bought a record amount of gold recently and there is a rising trend of nations using gold for international transactions and this is reflected in the gold price despite US rates falling. I don't think they are turkeys, but are working with self interest in mind facilitated by the new international settlement rules. Bank balance sheets now follow last year's Bank of International Settlement agreement. Britain was given a grace period which ended early this year because London was the key exchange for setting the daily gold price which was echoed in New York. The COMEX ETF now has to deliver on standing contracts which it avoided before the BIS rule change which suppressed the gold price. True equilibrium price can be established without suppression hence the rising price to meet demand (apart from Russian sanctions). Those buying gold have actually benefitted from the suppressed price given the trade settlement options now available and different trade blocks arising out of self interest. The old paradigm paradigm of gold backed currency is re-emerging simply because of large population sizes value gold and now have economic clout e.g. India and China.
Linked to the above could be a lack of confidence in the US dollar because of a series of setbacks: the GFC, lack of accountability, a perception by some nations that US hedge funds were distorting resource allocation, including gold price suppression and refusal for 5 years to repatriate gold to countries such as Germany after the last GFC. Then add in Covid, and climate change and their effect on decreased economic activity e.g. shocking East coast hurricanes and West coast drought, divisive politics and storming of the Capitol, and falling demand for the dollar as a reserve currency reducing capital inflow prior to the last spike due to free trade agreements between countries avoiding using the US dollar, have slowed the responsiveness of the USA.
Note, the German Chancellor was in China last week on trade talks. China has declared their currency will be backed by gold. Note, Crypto's have come off and gold has risen. Crypto's are not part of BIS agreements. Both India and Australia have been buying gold and are engaged in formulating a mutual trade agreement. India is becoming the third powerhouse along with the USA and China and I suspect is moving towards digital gold for both domestic transactions and international transactions. India has traditionally been the biggest domestic importer of gold. Also note, Saudi Arabia wants to join the BRICS nations block. That too threatens the value of the dollar unless deals can be made following their recent disagreements with the USA over reducing oil supplies because it was the Petro dollar that gave force to the US dollar international reserve status in the first instance many years ago and because the Mississippi River which carries most freight has all but dried adding to road transport costs. Before the BIS rulings, the US dollar had dropped to 60% of its former glory as an international reserve which global trade, and trade agreements have contributed to. Outsourcing to China and other places led to the rust belt problem in the USA which Trump got elected on. A defence led recovery (for valid reasons) has assisted the US economy and this is reflected in the rise in real GDP there. It may well assist to rebuild their economy along with the change in energy policy we see expressed through the critical minerals statements. This takes time to bring on stream.
Had Russia not invaded the Ukraine, the USA trade deficit was problematic. Similarly, high rates in the USA, in the next round in the cobweb theorem, unless checked, make exports less marketable except for defence or necessary goods and encourages imports which could lead to trade deficit and further domestic job decline.
There is also the factor that private capital moves to where the highest yield can be obtained. The US dollar index is now declining and confirms what I posted before (https://hotcopper.com.au/posts/64603903/single) i.e. it appears the US bond rate is returning to the 30 year bond downtrend with the 10 year bond corresponding to resistence on the 30 year bond. Traditionally, that means rates will fall, yet the real GDP has risen because of a defence led recovery which may not yet trickle down to all sectors but boosts the aggregate. So its hard for many to analyze what is the actual economic climate. It seems like a contradiction, but it depends on how you pick it apart.
So in aggregate, the inflation rate in the US appears to be falling and hopefully it continues. Generally speaking, capital will return to source, plus interest earned, particularly if other countries raise rates to combat inflation when the marginal propensities go against them. If US rates continue to fall, then borrowers like Australia from the USA, will see their rates come off. Note the correlation of our 30 year bond rate to that of the USA on the previous post reference. Our 4 big banks are dominated by American shareholders. Given we have free financial trade, consider where policies are really made when those shareholders are members of the US Federal reserve which is a private banking institution. Australia has benefited from this arrangement but happens to trade across trade blocks and is the third biggest gold producer. It is complex.
Hope we have a good week and SPQ can add to its gold resources. The copper is a no brainer.
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