According to a market analyst, the new bullish momentum for gold prices is more than just technical market pricing. The analyst says the precious metal’s ability to hold new critical support levels likely indicates a longer-term fundamental shift.
“There will be a higher inflation regime for a longer period of time”
Nicky Shiels, head of metals strategy at MKS PAMP, said in a recent note to clients that the biggest factor supporting gold’s new uptrend is changing investor expectations regarding the Federal Reserve’s monetary policy. The Fed will likely continue to raise interest rates until the first half of 2023. However, markets expect the pace to slow down. At the same time, inflation data will remain high.
According to the CME FedWatch Tool, markets see the Fed as certain to increase the Fed Funds rate by 50 bps next month. Nicky Shiels comments:
The Fed has slipped from being too late and then too fast with super-size rate hikes. Now the interim periods are over. So they won’t be able to raise inflation enough to bring it down sustainably. There will be a higher inflation regime for a longer period of time with a relatively slow Fed.
Where will gold prices move now?
According to Nicky Shiels, the path to gold is not a straight line to $1,800. However, the analyst notes that this goal is starting to come true. The gold market managed to hold on to last week’s gains, the best performance in roughly two years. The senior analyst explains:
In general, the precious metal will likely recede. But this is an opportunity to reconnect and extend the time to take advantage of a new bull market trend. Yes, gold has an uncanny ability to constantly disappoint. But when major technical breaks align with major Fed policy axes, it should respect that.
“This creates tailwinds for gold prices”
cryptocoin.com As you can follow, the underlying rally was also confirmed by the strong selling in the US dollar. The dollar index (DXY) fell below 110 points, its lowest level in nearly three months. At the same time, US bond yields fell sharply below 4%. Nicky Shiels makes the following statement on this subject:
Technically, there are very clear and coordinated signals in both the US dollar and US yields. Maybe the bonds haven’t bottomed yet. Or the US dollar hasn’t peaked yet. However, they are closer to that now. This is creating tailwinds for gold prices, which have struggled with a very challenging macro environment since the Fed started walking.
“These make the horse an attractive safe-haven asset”
In addition to the current momentum, Shiels also highlights the fact that precious metals are significantly under-appropriated by individual and institutional investors. He notes that gold ownership represents about 0.5% of stock market assets under management. It also points out that it has dropped significantly from its 2011 peak of 1.5%.
As to what will continue to push gold prices higher after a relatively calm and casual summer, Shiels says he sees a few risks in the market. Additionally, he notes that it makes gold an attractive long-term safe-haven asset. He also states that the chaos in the crypto markets is destroying significant wealth and investors are suffering a lot. He adds that the explosion of FTX, a major crypto exchange, will likely increase the attractiveness of tangible assets.
“This has the potential to be a tailwind for gold prices”
Finally, the midterm elections are over and Republicans are expected to control the House of Representatives. Therefore, Shiels says, fiscal concerns will likely start to escalate and threaten the stability of the US dollar. In this context, the analyst makes the following comment:
The market has been unfairly indifferent about the US debt path, largely because rates are so low. So debt levels have the potential to become more relevant now/there will be an additional tailwind.
