A few months have been frustrating for gold investors as the precious metal has failed to gain sustained momentum. However, according to market analyst Neils Christensen, the tide seems to be turning as rising inflation makes the precious metal an attractive and undervalued hedge.
“Real rates starting to fall adds to the already positive environment for gold”
Gold prices rallied above $1,800 on Friday and closed at $1,816.70, near an eight-week high. According to the analyst, the precious metal finished the week above a solid resistance point for the first time since the end of September.
The gold rally came after the U.S. Department of Labor said 531,000 jobs were created in October, solidly exceeding expectations. But markets seem to be focusing on wage inflation, according to some analysts. The report said wages have increased by 4.9 percent in the last 12 months. According to some economists, this trend will continue as companies have to raise wages to attract new workers.
Not only are price pressures increasing, but the Federal Reserve seems content to lag behind the inflation curve. cryptocoin.com As you can follow in the news, the US central bank announced that it will reduce its monthly bond purchases as expected on Wednesday. But Federal Reserve Chairman Jerome Powell also said it’s not time to raise interest rates. Analyst Neils Christensen comments:
While the Federal Reserve does not want to raise interest rates at any time, we can expect real rates to begin to decline with increasing inflationary pressures. This adds to the already positive environment for gold.
Robert Minter: Federal Reserve policies cannot solve supply-side problems
But it’s not just the Federal Reserve that isn’t ready to raise rates. It was the biggest surprise in central bank news, as the Bank of England did not raise interest rates on Thursday. A rate hike was telegraphed by the BoE, and the markets completely priced in this move and were greatly disappointed.
Looking at the big picture, Neils Christensen finds it logical that central banks should not rush to raise interest rates. Because the analyst thinks that this will not solve the current inflation crisis. However, economists note that the global supply shortage drives prices. Robert Minter, director of investment strategy at Abrdn (formerly Aberdeen Standard Investments), comments:
Tighter monetary policies will not solve port backlog. It won’t make new microchips available. All they will do is create a new barrier to scaling up capital expenditure when it’s really needed. Federal Reserve policies cannot solve supply-side problems.
Finally, to bring cryptos into the mix, the historic rally in cryptocurrencies adds to wage inflation and labor market distress. A Civic Science survey shows that 4% of 6,471 respondents have resigned from their jobs in the past 12 months, citing “financial freedom” due to their crypto investments. Also, 7% of respondents say they know someone who quit their job because of this.
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