As a gold investor, if you were expecting an easy end to a relatively quiet week, you were unfortunately wrong. cryptocoin.com As you can follow in the news, the precious metals market also started Friday with optimism, and gold and silver prices rose. Gold managed to climb to a six-week high above $1,800. However, this initial optimism was short-lived after Federal Reserve Chairman Jerome Powell said he cared about rising inflation risks.
Fed Chairman Jerome Powell upsets gold investors
Speaking at an online conference hosted by the South African Reserve Bank, Jerome Powell said the bank is on track to reduce its monthly bond purchases despite significant problems. On the threat of inflation, the Fed Chairman said he expects supply chain issues to be resolved eventually and inflation to drop to 2%, although risks escalate. Jerome Powell’s comments caused gold prices to drop nearly $30 from session highs. However, towards Friday’s close, gold traders managed to close prices positively at $1,792.28 to $1,800.
Contrary to what Jerome Powell says, markets see inflation as more than a “temporary bump.” Companies around the world are facing an energy crisis, supply chain bottlenecks and labor market shortages. Some economists expect some of these problems to persist into 2022, meaning that inflation pressures that are already high won’t drop anytime soon.
Bank of America: Current environment still not good for precious metals despite high inflation
According to market analyst Neils Christensen, inflation expectations can be seen in the bond market as breakevens are starting to rise to multi-year highs. Five-year breakeven returns are at their highest since 2004. Many commodity analysts expect gold to regain its shine as the Fed lags behind the inflation curve.
However, not all analysts are convinced that higher inflation and lower growth, also called stagflation, will be positive for gold. In a recent report, Bank of America notes that despite high inflation, the current environment is still not good for precious metals, reminding that not all periods of stagflation are the same:
We measure stagflation using the ‘Misery Index’, which is a combination of inflation and unemployment rate. While misery triggered two gold bull markets between 1971 and 1981, gold prices and the ‘Misery Index’ diverged in recent months. In fact, the ‘Misery Index’ still remains below the 12.5% level that has pushed the yellow metal up consistently in the past.
For now, we’ll have to wait and see who’s right: the Fed or the markets?
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