- Gold stayed popular among retail investors as the dollar gained strength as US inflation dwells.
- Gold and the US dollar tend to move inversely to one another, but that relationship has broken down.
- Experts say a recession may be around the corner and gold could create its own store of value.
Retail investors are more bullish towards gold than ever at the moment, even though the dollar is holding strong, as concerns about US inflation ramps up, according to data from European derivatives trading platform Spectrum Markets released on Wednesday.
Spectrum said its European Retail Investor Index (SERIX) hit a high of 116 in the past month, indicating the optimism among investors towards bullion, which can serve as a store of value in times of market turmoil or rising inflation. This was the highest such reading since the data series began, Spectrum said.
A reading below 100 on the SERIX data series suggests sentiment is bearish, while a reading above that level indicates bullishness.
"After a period of decline in May that saw the gold price drop below $1,800 USD on the 16th, the gold price started what looked like a new rally in the last few days of the month, supported by both the dollar and euro undergoing a weak phase," said Michael Hall, head of distribution at Spectrum Markets in a note.
He added: "Considering the macroeconomic backdrop, it's no surprise to see investors looking to take advantage of a dip in the gold price to make safe haven allocations."
Gold typically tends to move inversely to the US dollar, but growing concern over the global rise in inflation has started to lure investors and prompted this correlation to break down. The dollar index has risen nearly 7% this year, while gold has gained almost 1%.
It comes against a backdrop of rising interest rates aimed at cooling down red-hot inflation that is pervading the global economy. Despite the Federal Reserve trying to control soaring consumer prices by embarking on a series of rapid rate rises, retail investors are cautious and are looking togold as a potential safe haven against inflation, SERIX sentiment data shows.
"With fears of a recession rising, investors are increasingly turning to gold as a hedge," Nitesh Shah, head of Europe's commodities & macroeconomic research at fund management firm Wisdom Tree said in a note.
Reinforcing a weak economic outlook, the World Bank on Tuesday cut its forecast for global growth in 2022 to 2.9% from a previous projection of 4.1%, adding that "for many countries, recession will be hard to avoid."
For gold, this could be a good thing, according to Commerzbank strategist Daniel Briesemann. "We believe this will benefit gold in the long term, as it is likely to come into its own as a store of value in such an environment."
Gold was trading around $1,850 an ounce on Wednesday. It neared record highs above $2,000 an ounce in the immediate aftermath of Russia's invasion of Ukraine in late February, when commodity prices in particular soared.