Conflicting parties restrict gold supply.

In the current economic landscape, fiscal and monetary stimuli are expected to prop up the global economy for another one to two years, according to gold strategist Joe Foster of asset manager VanEck. However, as the economy recovers, the strength of the US dollar suggests that interest rates will rise, a forecast that Foster finds plausible.

The US dollar's strength is a clear sign of a healthy economy attracting investment flows. Yet, this strength could also indicate a correct forecast for the near future, as Foster believes. The world, he emphasizes, is saturated with liquidity that is almost free.

This abundance of liquidity, combined with record money supply and structurally higher commodity prices, indicates that inflation could persist in the long run. Current inflation, according to Foster, is being driven by supply bottlenecks and growing demand. Inflation poses a significant risk, and if the bond market accurately predicts economic weakness, then the current inflation could eventually transition into stagflation.

Amid this economic uncertainty, central banks are turning to gold as a means of reserve management. The Thai central bank governor stated that gold fulfills the main objectives of reserve management: security, yield, diversification, and hedging. This year, Thailand, Hungary, and Brazil emerged as the largest buyers of gold by central banks, a figure reported by Joe Foster himself.

In the first half of the year, central banks' net gold purchases totaled 333 tons. Notably, China made the largest gold reserve acquisitions, increasing its reserves by about 1.9 tons to a total of approximately 2,302.4 tons. Poland remained the biggest net buyer with 67 tons purchased this year so far.

Bond markets, on the other hand, reflect concerns about the increasing impacts of the Delta variant and fears that the economy could suffer as the Federal Reserve begins to unwind its stimulus measures. Declining interest rates, a traditional signal of an impending economic weakness, suggest that bond markets expect just that.

Stock and bond markets could collapse without the liquidity provided by governments, according to Foster. The traditional signals that the market relies on have been distorted by the radical fiscal and monetary policies. Economic growth after the stimuli wane is expected to be increasingly risky, says Foster.

These diverging markets indicate a high degree of uncertainty. As we move forward, it will be interesting to see how central banks and governments navigate this complex economic landscape.