Inflation remains a double-edged sword for the gold market. While inflation will keep real interest rates low, rising consumer prices are met with expectations that the Federal Reserve will take aggressive steps to cool the economy.
Inflation, Federal Reserve, and gold prices
The Federal Reserve wants to end its monthly bond purchases in March. Markets also expect to see the first rate hike in March. Markets are pricing in four rate hikes this year. In one final hawk move, the Fed has signaled that it may begin reducing its overblown balance sheet before the end of the year.
At first glance, these appear to be quite significant obstacles for the precious metals market. But at the beginning of the new year, there is still a lot of uptrend in gold and silver. Many analysts point out that expectations that the Federal Reserve will lag behind the inflation curve are beginning to slide into fears that aggressive monetary policies will plunge the economy into recession. Once again, the Fed has painted itself into a tough corner that should be good for gold prices for the rest of the year, according to analysts.
cryptocoin.com As we reported, billionaire ‘Bond King’ Jeffrey Gundlach made headlines earlier this week after he said he was on ‘recession watch’ in 2022. DoubleLine CEO noted that US consumer confidence and yield curve data point to a potential economic slowdown and said, “We will be in a recession fit like we haven’t been in the last two years.”
Consumers are starting to see their purchasing power decrease, which forces them to buy fewer products. Many analysts point out that current conditions could worsen before they improve, with commodity prices soaring at the start of the year.
Axel Merk, chairman and chief investment officer of Merk Investments, said in an interview that gold is in a very solid position as a key portfolio diversification tool no matter what the Fed does this year:
I’m very happy where the gold is right now. I think gold has found a solid footing here.
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