Higher-than-expected inflation on Thursday kept gold prices below $1,900. That’s why the gold market hit the wall. Looking beyond short-term volatility, gold remains an attractive investment, according to one investment strategist. Because according to the strategist, prices are in a long-term uptrend.
“The long-term model for gold is giving a buy signal!”
The gold market suffered significant damage last month when the 50-day moving average crossed below the 200-day moving average, known as the death cross. The selling momentum then pushed prices to just above $1,800, a seven-month low. Tim Hayes, chief global investment strategist at Ned Davis Research, evaluated the latest developments. Hayes says that despite the technical breakout, gold’s 200-day moving average is in an uptrend.
cryptokoin.comAs you follow from , gold prices have rebounded from last week’s lowest levels. Meanwhile, the Federal Reserve has signaled that it will maintain restrictive monetary policy until inflation returns to its 2% target. Following this development, the momentum underneath seems to be decreasing. Hayes shares the following assessment:
Our short-term gold pattern has reached the lowest levels it has ever reached. However, our long-term model remains in a buy signal. I put all this together and I don’t want to fight the current trend right now. I’m back to being neutral. I’m ready to be bullish when I know bond yields have peaked and will return. In such an environment, gold’s upward trend may manifest itself again.
Keep an eye out: These developments will be positive for gold
Investors need to keep an eye on it, says Tim Hayes. Because he states that gold may be on the verge of a momentum change as safe haven demand begins to show itself again. Hayes notes that, according to his modeling, at last week’s lows, pessimism in the gold market was at its highest level seen all year. Additionally, Hayes adds, market sentiment has priced in a lot of bad news for the precious metal. Based on this, the strategist makes the following statement:
Yes, maybe, but the Federal Reserve won’t be in a rush to cut interest rates like investors want. But we are at the end of the tightening cycle. This also applies to global central banks. We are in a completely different place than we were last year. The concern now is how much economic weakness we will see as the Fed tries to stem inflation. This will be positive for gold.
Investors need to follow these developments carefully.
Tim Hayes looks beyond growing economic and geopolitical uncertainty. In addition, he says that gold investors will also want to consider the increasing debt and budget deficit in the United States. Sell-offs in the U.S. bond market have been reasonably orderly. However, as markets adjust to the Fed’s aggressive monetary policy, it is possible that the market will attract fewer investors. In this case, there are some concerns that yields may rise further.
On Thursday, data showed inflation remains stubbornly high. Following this, the US Treasury Department announced that $20 billion of 30-year bonds saw average demand. Hayes says gold will perform well if bond yields start to rise as supply exceeds demand. In this context, the strategist comments:
The 12-month total deficit is at 1.9 trillion dollars; decreased slightly from extreme levels. But this is still quite extreme and negative for the US dollar. So it will be positive for gold prices.
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