After a relatively quiet week, the gold market saw some fireworks on Friday as investors reacted to rising inflation data.
Gold’s price action on Friday was impressive
Economists had expected to see further declines in consumer prices in May. But the U.S. Department of Labor said the Consumer Price Index rose 8.6% in May to its highest level in 40 years.
The gold price action on Friday was impressive to say the least. As we reported Kriptokoin.com , the yellow metal experienced a price fluctuation of around $50. Gold climbed from the bottom of its range to just above $1,825 to test a key resistance at $1,875.
David Einhorn: At this point, it’s best to have some gold
According to many market analysts, investors are wondering if the central bank really wants to lower inflation. He began to question whether he could drop it. Therefore, the Federal Reserve’s credibility is now at stake. The Federal Reserve is expected to raise interest rates by 50 basis points next week and in July. The Fed, on the other hand, is unfortunately lagging behind the inflation curve, and some key investors are paying attention.
On Thursday, David Einhorn, founder of Greenlight Capital and longtime gold bull, shared his views. Einhorn said gold will be an important asset as the Fed has been bluffing about taming inflation. The gold bull made the following statement in a presentation during the Sohn Investment Conference:
The Fed doesn’t really have the tools to stop inflation. When the Fed has to choose between fighting inflation and supporting the Treasury, I think it should choose the Treasury. At this point, it’s best to have some gold.
“Increasing geopolitical uncertainty will continue to support gold”
The Federal Reserve continues to raise interest rates aggressively to cool inflation. Therefore, the precious metals market is likely to face some tough headwinds. However, some key players still see value in the yellow metal. Famous hedge fund manager David Einhorn is among them.
Einhorn said he saw gold prices much higher as the Federal Reserve eventually failed to control inflation. Also, Einhorn commented on the growing trend of de-dollarization among some central banks.
As it will be remembered, the USA and its Western Allies armed the US dollar. In this context, harsh sanctions were imposed on Russia due to the ongoing Russian occupation. This sanction has led some countries to reassess their US dollar reserves. Einhorn said heightened geopolitical uncertainty will continue to underpin the gold. In this context, Einhorn made the following statement:
When countries do not trust each other for bonds and currencies, gold becomes the ultimate reserve asset. Gold remains surprisingly low as a percentage of total reserves. The question is whether there is enough gold to support foreign exchange reserves? The answer is that the price of gold rises even higher, perhaps even higher.
What do the central bank gold survey results show?
But it’s not just investors who see gold as a key asset in a portfolio. On Wednesday, the World Gold Council released its annual central bank gold survey. 57 banks participated in this year’s survey. 25% of respondents said they want to increase their gold reserves in the next 12 months. In this context, analysts underline the following points in the report:
Expected changes in the international monetary system and concerns about increasing economic risks in reserve money economies are also important factors. However, the planned acquisitions are mainly driven by growing concern about a possible global financial crisis.
It is not surprising that demand for gold is starting to attract demand for new safe havens. On Tuesday, the World Bank waved a big red flag, saying it would be difficult for some countries to avoid a 1970s-style recession.
