The gold market is discounted to fair value. But investors are likely to stay on the sidelines as the Federal Reserve continues to aggressively tighten monetary policy, according to one market analyst.
According to the model, the current value of gold is $1,791
Huw Roberts, Head of Analytics for Quant Insight, said in an interview that gold looks cheap compared to its fair value. However, he also notes that macroeconomic conditions do not support a new uptrend in the near future. He adds that according to QI’s modeling, the current value of gold should be around $1,791.
The comments came as gold struggled to find new bullish momentum despite holding long-term support above $1,730. Huw Roberts says QI considers the fair value model of gold in very broad terms. He states that the model takes into account economic growth, inflation, real interest rates, financial conditions including the yield curve and credit margins, the monetary policy environment and risk appetite.
“We currently do not have a strong buy signal for gold”
Huw Roberts says QI models show that macroeconomic fundamentals are deteriorating for gold. He also adds that this could signal further weakness in the near term. He notes that traders using QI modeling expect the macro picture to at least stabilize before buying the current drop. In this context, Roberts comments:
Although the model shows that gold is cheap, we actually do not have a strong buy signal at the moment. From a pure QI perspective. We want the macro model value to increase even more.
16 factors that can affect the price of gold!
Roberts also shares his views on what could change the course of gold. In this regard, he says, the model suggests that there must be a change in the trend in interest rates. In this regard, Roberts notes that they underline 16 factors that may affect the gold price.
However, the most important factor driving the market remains inflation. According to QI’s research, inflation accounts for more than 18% of the fair value of gold.
“Our model value will not stabilize by this time!”
Real returns are on the rise even though inflation is at its highest level in the last 40 years. At the same time, break-even levels, the difference between nominal and real returns, are falling as recession fears increase. Roberts comments:
Heads are falling. The market is worried about a recession and falling inflation. So until these factors return or just stabilize, our model value will not stabilize.
cryptocoin.com As you follow, the market is preparing for another extraordinary rate hike from the Fed. Also, recession fears have increased in recent days. Meanwhile, markets expect the Fed to raise rates by another 75 basis points at the end of the month.
