Why gold has been rallying to record highs

Carley Garner, Senior Strategist and Broker at DeCarley Trading, joins TheStreet to explain what’s driving gold prices.

Transcript

00:00Can you just give us the mom and pop reasons so that people can understand what exactly

00:05is driving the rally to record highs?

00:08If you want to talk about the big picture, what was holding gold back a couple of years

00:13ago was higher interest rates and a higher dollar.

00:17And those two things are starting to work themselves out.

00:20Interest rates are still really high, but I think they appear to be on their way lower.

00:24And I'm of the camp that the Fed will start lowering rates sooner rather than later.

00:30And I think the interest rate market, the treasuries, will follow suit.

00:33And if that's the case, it makes gold more attractive, and the reason being gold doesn't

00:37pay dividends.

00:39Gold is a portfolio diversifier.

00:41It can do well when other assets are struggling and vice versa, but it doesn't pay dividends

00:46or interest.

00:47So when interest rates are high, people have an incentive to put their money in instruments

00:51that do pay interest, like treasuries, as opposed to gold.

00:55But now if we see a normalization in interest rates, that'll put a little more, it'll entice

01:01people to allocate a little more money to gold, and that should give us a little bit

01:04of a support.

01:06Also the higher dollar, the dollar index is trading around 103, 104, which is, it's lower

01:12than we've seen it for the last couple of years, but the reality is it's still really,

01:15really high.

01:16We probably are in store for a repricing in the dollar somewhere into the, I want to say

01:21low 90s, and if that is the case, all else being equal, that too will allow gold to

01:27move higher.

01:28And so we've seen some of this start, but we haven't really seen it fully develop yet.

01:33And so how much does geopolitics play into this as well?

01:39I think that's a really very good point.

01:42When there's a lot of uncertainty economically or politically, a lot of people put their

01:48money in safe havens.

01:49We've seen some money go into gold, and we're seeing some start to come into silver.

01:54I think this will probably accelerate if things get hairy, for example, going into the election

01:59season, or if simply we start seeing some of the other assets reprice.

02:03In my opinion, the stock market is wildly overpriced, even after the recent correction,

02:08and bonds are cheap and gold is cheap.

02:10So I think that once reality hits with some of these other fundamental stories, we might

02:15see some money shift into gold as a bit of a hedge against uncertainty.