Gold investors seem to be looking for the Federal Reserve’s bluff that it can contain inflation as prices remain above Wednesday’s breakout move, analysts said. Analysts’ market comments and trend forecasts cryptocoin.com compiled for our readers.
Ole Hansen: One reason for gold’s good performance is the risk of ‘policy error’
Not only are gold prices trading close to a two-month high, but Wednesday’s breakout came with US bond yields hitting the highest in more than two years. The 10-year rate is currently trading at 1.83%, down slightly from Wednesday’s 1.87%. Ole Hansen, head of commodity strategy at Saxo Bank, comments:
With a lot of bad news already taken into account, the gold market has finally started to respond positively to increasing inflationary pressures, which has pushed real and nominal interest rates even higher.
While increasing consumer price pressures have led to expectations of more aggressive monetary policy action from the Fed, analysts say there isn’t much the Fed can do. Ole Hansen comments:
The problem with battling inflation in a slowing economy is the increased risk of ‘policy error’. This is probably one reason why gold is performing quite well. The bullish trend in gold continues, as the rally is reflected in other precious metals, especially silver.
“Despite rising interest rates, gold attracts new investors”
While real interest rates are rising, analysts predict they will remain in negative territory as inflation pressures rise. Economists note that rising commodity prices and rising wages will continue to support inflation in 2022, with oil prices trading close to their seven-year high.
Michael Widmer, precious metals analyst at Bank of America, says the Federal Reserve is unlikely to control inflation, which means monetary policy will lag behind the inflation curve.
According to Ole Hansen, it will be difficult for the Federal Reserve to raise interest rates aggressively unless they really want to suffocate the economy. Currently, markets are pricing in four rate hikes in 2022, with expectations for a 50 basis point hike in March. At the same time, the Fed plans to stop its monthly bond purchases in March and may begin shrinking its balance sheet before the end of the year.
Michael Widmer considers it unlikely that the US central bank will be that aggressive in monetary policy. He adds that rate hikes will have little impact on inflation, which continues to be driven in part by global supply chain restrictions.
Daniel Briesemann, precious metals analyst at Commerzbank, states that even in the face of rising bond yields, gold is beginning to attract the attention of new investors. The analyst noted that the assets of gold-backed exchange-traded products rose nine tons on Wednesday, the biggest one-day increase since mid-November.
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