Gold prices rebounded from early losses on Wednesday, bolstered by the dollar’s slump, after the Federal Reserve announced it would end its pandemic-era stimulus measures in March. Meanwhile, Morgan Stanley analysts say easy yields on U.S. stocks, loans and Treasuries are over, but European and Japanese stocks will see value in 2022.
“A breakout significantly below this level could lead to a rout”
Spot gold prices rose 0.4% to $1,777.82 at the time of writing, while US gold futures were last trading at $1,784.70, up 1.14%. cryptocoin.com As we reported, the action of the US central bank signaled the achievement of the inflation target and paved the way for three rate hikes by the end of 2022. Tai Wong, a New York-based precious metals trader, comments:
The market was expecting a hawkish move from the Fed and they caught it on the dot chart. The market is pleased that the Fed is a little startled and does not want to lag too far behind the curve. The key technical level for gold prices is $1,750. A breakout significantly below this level could lead to a rout in the last days of the year.
Gold prices initially fell nearly 1% after the Fed’s announcement, hitting a two-month low. However, gold later rebounded as the dollar abandoned its early gains and traded 0.2% lower.
Nearing the end of weakness for gold prices?
In its new economic forecasts, the Fed will work towards an inflation target of 2.6% next year, compared to 2.2% in September. Rising price pressures add to gold’s appeal as some investors see it as a hedge against high inflation.
Fed Chairman Jerome Powell also pointed out that the US economy is recovering rapidly, but warned that he does not see an end to the Covid-19 pandemic in the near term. Edward Moya, senior market analyst at OANDA brokerage firm, thinks that the gold’s weakness is coming to an end:
The risk of the economy going into recession in 2023 doesn’t seem all that unreasonable. Gold’s weakness may be coming to an end as it will be on autopilot until the Fed’s March policy meeting.
Analysts advise investors to be patient
According to Morgan Stanley analysts, the S&P 500 index could drop 5% in 2022 and other developed markets could close the year higher. That’s why analysts recommend underweighting US stocks, taking into account higher valuations and the potential for more capture, and less volatility elsewhere in the world.
Analysts suggest underweighting US Treasuries with the expectation that the 10-year Treasury rate will exceed 2% by the end of 2022. Analysts say local emerging market debt is starting to look interesting, but advise investors to be patient:
With the expectation that the US dollar and real interest rates will rise as the year begins, investors will get a better entry point later in the year.
While copper and zinc soften with better supplies, precious metals could lose their shine as higher real interest rates put pressure on gold, analysts said. For strategists who point to cyclical and structural factors, aluminum remains the best choice.
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