With the expectation that the Federal Reserve will have to continue its aggressive monetary policy, bond yields rise, while the headwinds in the gold market continue to strengthen. In this environment, the expectations for the gold price point to a decrease again. However, in the long-term perspective, the bulls remain hopeful.
What makes the situation even more difficult for the gold price
There is no doubt that this is a challenging environment for gold at the moment and there is room for prices to move further down. However, many analysts state that nothing has changed to change the long-term bullish potential of gold. To put gold’s price action into perspective, we need to take a closer look at the bond market. Yes, bond yields are rising again, as persistently rising inflation could force the Federal Reserve to cut interest rates to 5.50% over the next few months.
Complicating the situation for the gold price is that short-term bonds offer positive returns to investors, making them attractive safe-haven assets again. However, the source of the problem is yet here. The US bond market is seeing its largest inverted yield curve in 40 years. The US economy has been more resilient than expected. However, this does not mean that the threat of a global recession has disappeared. Some economists say the question is not whether a recession will come, but when.
“The price of gold will rise and the dollar will fall!”
Last week, we saw the January inflation data come in warmer than expected, with the US Consumer Price Index rising 6.4% for the year. Economists had expected a 6.2% increase. Meanwhile, the US Producer Price Index rose 6% year-on-year, against an expected 5.4% increase. Due to the latest inflation data, markets see the potential for the Fed to raise interest rates by 50 bps next month. This change in interest rates is negative for the gold price in the near term. But analysts point out that the more the Fed cuts rates, the greater the threat of recession.
Recently, billionaire investor John Paulson, founder of Paulson & Co., has touched on the long-term potential of gold. He says investors should follow the path established by central banks that bought record amounts of gold last year. In an interview with journalist Alain Elkann, Paulson explains:
There has been a significant increase in demand from central banks to replace dollars for gold, and we are only at the beginning of this trend. Gold will rise and the dollar will fall. So it’s better to keep your investment reserves below at this point.
“Gold will be $5,000 by 2025 because…”
Meanwhile, ‘Rich Dad Poor Dad’ writer Robert Kiyosaki posted another warning on Twitter about an impending global recession. Kiyosaki suggests that now is the time to buy gold, silver and Bitcoin. In this regard, he shares the following predictions:
By 2025, gold is $5,000, silver is $500 and Bitcoin is $500,000. From where? Because faith in the US dollar and counterfeit money will disappear.
“Gold may be under pressure in the short term”
cryptocoin.comAs you follow, gold fell to its lowest level in six weeks. Economists at Commerzbank believe the yellow metal may remain under pressure for the time being. In this context, economists make the following statement:
Market participants will proceed with caution, especially given that Swiss gold exports will likely confirm weak demand in India’s key market. While gold exports to China are more robust, inventories are replenished before New Year’s festivities or further central bank purchases. In the short term, we see low potential in the gold market.
Technical view of gold from TDS perspective
Strategists at TD Securities record the technical outlook for gold:
Viewed through a technical lens, gold is now among the most overbought in the precious metals complex. 51% of average reversal signals point further down. But the combined breadth of trend width and average reversal signals are sending mixed signals for gold after an explosion in physical buying activity.
Mid-year gold price forecast lowered to $1,800
In the opinion of strategists at Commerzbank, investors in the gold market are likely to hesitate after the price drop. They explain their views as follows:
Hopes for an end to the cycle of interest rate hikes in the near future in the US were premature. Currently, gold costs $130 less than at the beginning of the month. Probably some investors have burned their fingers. In response to the Fed’s sharper rate hikes, we lowered our mid-year gold price forecast to $1,800 (previously $1,850). However, the US economy could see a lasting recovery in the second half of the year as it is likely to experience a slump that will likely lead to renewed interest rate cut expectations. As such, we’re sticking with our year-end estimate of $1,950.
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