On an EST gold futures basis, the most active April 2022 contract was down $35.60 to $1,890.70. Gold and the dollar both tumbled on Friday, in contrast to Thursday’s dramatic drop in price, which was largely driven by a strengthening dollar. Currently, the dollar index is fixed at 96,555, down 0.58%. Master market analyst Gary Wagner interprets the markets along with the latest developments and conveys the analysts’ forecasts. we too cryptocoin.com As we, we convey the analyst’s evaluations to our readers in his own words.
“Inflation is a double-edged sword that affects gold prices”
Today the BEA (Bureau of Economic Analysis) released the latest data on current inflation levels compared to the PCE (price index for personal consumption expenditure). The report revealed that inflation rose 0.6% in January, the largest annual increase since 1982. The 0.6% increase in January means a 6.1% year-on-year increase. Recently, the government’s CPI report (which includes energy and food) revealed that inflation had soared to 7.5%, the highest level since 1982.
To understand how inflation has been rising steadily, consider the PCE index 4.4% YOY in September, 5.1% in October, 5.6% in November and 5.8% in December. Since September 2021, inflation levels, represented by the Federal Reserve’s preferred PCE index, have increased by 1.7%.
Inflation is a double-edged sword that affects gold prices. Gold has long been seen as a haven for investors, protecting them from rising inflation. At the same time, as inflation rises, it puts more pressure on the Federal Reserve to raise interest rates, which has a negative or downward impact on gold.
Multiple Federal Reserve members confirmed yesterday that they are planning to raise rates by 0.25% and kick-off (beginning of interest rate normalization) rates for the first time since the start of the pandemic in March 2020. CME’s FedWatch tool acknowledges the possibility of the Fed increasing the Fed Funds rate by 0.25% instead of 0.50%. This indicator estimates that there is a 78.9% probability that rates will rise from 0-25 basis points to 25-50 basis points, and a 21.1% probability that rates will rise from 0-25 basis points to 50-75 basis points.
Agenda: Invasion of Ukraine and sanctions against Russia
Inflationary pressures will likely continue to increase as the Russian invasion of Ukraine continues. Russia produces about 10% of the global oil supply. Crude oil futures rose just over $100 a barrel yesterday before settling from those highs of just over $93 a barrel. Also, food costs are likely to continue to rise in addition to inflation.
Investors continue to weigh what impact Thursday’s sweeping Russian invasion of Ukraine will have on financial markets. Stocks leading up to the worldwide occupation fell dramatically on the expectation that such a move would have a dramatic impact and result in an economic contraction. However, we have seen a notable rebound in US stocks in the last two days.
The European Union, together with the United States and Canada, began to impose sanctions against Russia for its deliberate attack and occupation of Ukraine, a sovereign country. According to Bloomberg News, “Global condemnation of Vladimir Putin has accelerated as the US prepares to impose personal sanctions on the Russian leader, as his troops march towards the Ukrainian capital and incite the Russian military to revolt.” It was also reported that the United States plans to impose direct sanctions on Vladimir Putin for his order to launch a full-scale invasion of Ukraine.
Multiple news sources reported that Russian troops were rapidly approaching the Ukrainian capital. However, most analysts and President Joe Biden agreed that the sanctions would not have an immediate effect and could take months to affect the Russian economy.
What is quite clear is that the possibility of a diplomatic solution or concluding current military actions will not arise quickly. The Russia-Ukraine war can cause great destruction, distress and death of the Ukrainian people. Putin has declared that the Russian military operation will not end until the Ukrainian army lays down its arms and the political leadership in Ukraine is overthrown and replaced by pro-Russian politicians.
“Recent drop points to further price drop for gold”
The price fluctuations of gold have been dramatic for the last two days. On Thursday, gold rallied as high as $1,976.50 and settled at $1,905 before falling dramatically, coupled with Friday’s $17 drop, causing gold prices to drop weekly.
Analysts say the pullback from Thursday’s highs is just a round of technical take-profits. Analysts believe the latest price drop points to further price declines below. Daniel Briesemann, an analyst at Commerzbank, comments on this very meaningfully, “We think the price drop is premature, there is a risk of further escalation in the conflict and it may just be a temporary fix.”
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