Continued selling pressure in equity markets is helping the gold market shine again as a safe-haven asset. According to some economists, increasing inflationary pressures are adding to the increased risks of an economic slowdown.
Craig Erlam: Gold finally sees some safe-haven flows
as we reported on Cryptokoin.com while the gold market, equity markets continue to suffer It managed to climb above the critical initial resistance at $1,830. Investors are fleeing stocks as rising inflation weighs on first-quarter earnings, according to market analysts.
The S&P 500 fell 4% on Wednesday, the worst one-day drop since June 2020, when the global Covid-19 pandemic rocked financial markets. Selling pressure continued as the S&P fell another 1% on Thursday. Meanwhile, gold prices managed to find support at $1,800 on Wednesday and saw some technical tracking buying on Thursday. On Friday, it follows a fluctuating course back and forth. Craig Erlam, senior UK and European market analyst at OANDA, comments:
Gold seems to be finally seeing some safe-haven flows, as markets react strongly to the threat of recession rather than simply high interest rate expectations. Second, it increased yields and made the dollar more attractive. However, the economic woes they contribute seem more appropriate for gold inflows.
“Fed is unlikely to step back from tightening plans”
Although the price action of gold over the last two months has been disappointing Some analysts say it plays the role of a safe-haven asset that outperforms equity markets. Gold is roughly neutral for the year, with the S&P 500 down 18%.
Some analysts predict that stock markets will fall further in the near term. Thomas Mathews, market economist at Capital Economics, in a note on Thursday, underlined that
We think the recent decline highlights the readiness for a rising headwind for equities, a risk we’ve been warning about for some time.
“We don’t expect the pressure on valuations to ease any time soon,” says the economist, although headline inflation has peaked, but as Jerome Powell highlighted earlier this week, how well above target it is. Given that the Fed is still clearly annoyed. Thomas Mathews comments:
In our view, it is unlikely that the Fed will back down significantly from its tightening plans until inflation is much more under control. In other words, we don’t think the ‘Fed put’ will come into effect anytime soon.
Jim Wyckoff: The biggest driver for gold is inflation
Rising interest rates, the Federal Reserve aggressively cut interest rates over the summer While it continues to be a headwind for gold, some analysts note that market volatility needs to strike a balance. Senior technical analyst Jim Wyckoff makes the following predictions:
Further losses in the stock markets are likely to support the gold price. However, gold bulls have been disappointed as the selling pressure in stock indexes over the past few weeks has not supported the safe-haven metals any further.
Jim Wyckoff adds that while stocks provide vital gold support, the biggest driver for the precious metal remains inflation. Overall, rising inflation, which will become more problematic in the coming months, will be on the upside for precious metals, according to the senior analyst.
Ole Hansen: Foreign markets have become more gold-friendly for some time
Saxo Bank’s head of commodity strategy, Ole Hansen, He thinks gold’s rise above $1,839 could reverse the bearish trend that has shaken the market. However, he adds that the market still has some heavy loads. The strategist explains:
The yellow metal is not out of control yet and it’s too early to talk about $2,000, but for now, foreign markets have become more gold-friendly than they have been in a while.
“We maintain bullish outlook for yellow metal”
“The need to diversify in a troubled stock market environment,” Ole Hansen said in a report released Thursday. “We maintain a bullish outlook for gold given the returns on a policy FOMC policy mistakes and the increased risk of lowering the dollar.” The strategist continues his assessment as follows:
From an absolute return perspective, the dollar-denominated performance of gold so far can be seen as a disappointment. But given the impact of the stronger dollar and massive losses in stocks and bonds, any diversified investor is likely to be happy with gold.
