Inflation may have peaked in the US, giving the Federal Reserve room to end its aggressive monetary policy. However, the global threat has not subsided, which will continue to support the gold price even as price volatility increases.
It will really depend on inflation!
Gold prices tested the support near $1,980 on Wednesday and dropped to a two-week low. With this, cryptocoin.comAs you follow, it has since recovered and continues to find support around $2,000. Meanwhile, UK inflation came in higher-than-expected, staying above 10% year-on-year in March. This was the seventh consecutive month with inflation above 10%. According to some analysts, gold reacted to British inflation data because it triggered fears that the threat of inflation in the US would flare up again, forcing the Federal Reserve to maintain its aggressive monetary policy stance and pushing the economy closer to recession.
The latest data from the CME FedWatch Tool markets see more than 80% chance for a 25bps increase next month. However, looking beyond May, the expectation of a possible interest rate cut in the second half of the year leaves its place to more interest rate hikes. Ipek Ozkardeskaya, senior analyst at Swissquote Bank, draws attention to the following points in her daily research note:
No one knows where the Fed will go next, and whether next month’s 25 basis points increase (which is given a more than 80% chance) will be the last. The truth is, it’s really going to depend on inflation.
TOknowing where inflation is headed for to commodity prices Look!
Currency analysts at Brown Brothers Harriman say the market’s move to pricing rate hikes this year could provide further support for the US dollar, which will put pressure on gold prices. Michele Schneider, director of trade education and research at MarketGauge, notes that investors should pay attention to commodity prices, especially food commodity prices, if they want to know where inflation is headed.
British data showed that food prices have risen 19.2% in the last 12 months, the biggest increase since August 1977. Schneider says years of low global farm production to support high food prices has left the world vulnerable to more supply chain problems. Citing a report from Fitch Solutions, Schneider notes that in 2023, rice production is expected to see its worst annual output in the last 20 years.
According to Fitch, the world may face a rice deficit of 8.7 million tons. In Pakistan, which produces about 7.6% of the world’s rice, the harvest fell by 31% due to the severe flooding last year. Unfortunately, rice is the last food item to be added to the list of foods whose prices are increasing due to production problems. Serious price increases are also seen in coffee, sugar and wheat this year. Schneider comments:
The cycle of inflation is not over. Inflation in the US may have fallen from 9%, but it’s still up 5% or 6% this year; that’s still pretty high.
For gold, $2,000 in gold is a buying opportunity!
“We believe that inflation will be much more sticky and that the market expectation of 2.5% will be met in the short term, but not in the long term, causing real returns to be repriced in a supportive way to gold,” Schneider says in his latest research. Schneider warns that the increased uncertainty could create some volatility for precious metal prices. He adds that prices could be traded in a range between $1,950 and $2,015. In this context, he makes the following statement:
At the moment, the market does not know what to fear. Should they fear the Fed is raising interest rates and causing a recession, or should they be ending the tightening cycle and inflation spiraling out of control?
Despite the short-term volatility, Schneider says gold remains bullish and a drop below $2,000 should be viewed as a buying opportunity. Accordingly, Schneider says, “In this environment, $1,950 would be an incredible purchase.”
I continue to be a gold bull because…
Ole Hansen, head of commodities strategy at Saxo Bank, says in a note that it remains a long-term gold bull even if prices continue to correct in the near term and consolidate lower.
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