Gold trading at an eight-month high of around $1,900 could be a sign that traders don’t believe the Federal Reserve will do much to curb the current inflation threat, at least in the near term, according to some analysts. Market comments and price forecasts from professional analysts and economists cryptocoin.com We have prepared for our readers.
“The movement in the price of gold is due to investors not believing in the Fed”
Gold prices rose as traders and investors saw it unlikely that the Federal Reserve would raise interest rates by 50 basis points. At the beginning of the week, the US central bank had a more than 50% chance of making an aggressive move at the next monetary policy meeting for the markets. But since the FOMC’s January meeting minutes were released, expectations have dropped to about 30%.
That said, the gold market isn’t completely out of control yet, as there has been talk that the Federal Reserve might surprise the markets with an intra-meeting move. But some analysts think this is unlikely. Bart Melek, head of commodity strategy at TD Securities, comments:
I think a move before the March meeting would signal panic in the market and that’s what they don’t want to do. I think this move we’re seeing in gold is due to investors’ disbelief that the Federal Reserve can reduce inflation, especially in the short term.
Bart Melek does not predict that the Fed will whip on inflation until the third quarter
The head of commodity strategy notes that break-even rates at the short end of the yield curve, especially five-year rates, are even higher when looking at inflation expectations. In contrast, breakeven rates on the long end remained relatively stable.
Bart Melek adds that in the current environment, the Fed probably still has time to see if inflation pressures begin to ease. He also says there are elements in rising consumer prices that could be temporary. The strategist explains the issue as follows:
I think inflation will stay high for a long time, but I don’t know how high it will be. I predict the Fed will continue to sacrifice short-term inflation to support the labor market.
Bart Melek adds that the Fed will act more aggressively if inflation remains at current levels for most of the year. However, he doesn’t expect the central bank to whip up inflation until the third quarter.
“Jim Bullard’s extreme hawkishness is not shared by the majority in the FOMC”
While the US central bank is expected to raise interest rates, some economists say the latest minutes show that markets may be a little too aggressive in their expectations. Paul Ashworth, chief US economist at Capital Economics, says the minutes clearly show that the Fed is not seriously considering a 50 basis point move next month.
The minutes showed that the US central bank is trying to tighten monetary policy faster than the last tightening cycle. However, Paul Ashworth points out that this is not an important bar to cross:
If inflation doesn’t drop as they expected, the suggestion that ‘it would be appropriate for the FOMC to lift policy alignment faster than they currently anticipate’ is arguably a bit more hawkish. But still, nothing in the minutes indicates that Jim Bullard’s extreme hawkishness was shared by the majority in the FOMC.
Ole Hansen: Gold will be positively affected by this development
However, some analysts expect gold to stay on track no matter which path the Federal Reserve chooses. Ole Hansen, head of commodities strategy at Saxo Bank, sees gold’s momentum as an indication that investors are seeking to hedge against the Federal Reserve’s failed attempt to control inflation:
Whatever the timing, gold will be positively impacted as the first rate hike will put the US economy on a path to a sharp economic slowdown. The Fed will raise until things break, and the sooner they start, the sooner gold prices will reach support.
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