The gold market has found itself in a sticky, difficult situation as prices saw its worst sell-off in nearly a year, with prices down nearly 4% this week. The precious metal fell to a three-month low after four weeks of consecutive losses. If you look at the sentiment in the market, gold might struggle to hold $1,800.
Gold faces two major headwinds: Rising dollar and bond yields
This week’s sell-off is even worse as gold failed to get help from the latest inflation data. As you can follow from Cryptokoin.com news, this week the US CPI showed that annual inflation increased by 8.3% in April. Consumer prices decreased compared to the 8.5% data in March; however it was still warmer than expected. Market analyst Neils Christensen comments:
Despite all this disappointing economic news, the gold market can’t take a break. The Federal Reserve’s aggressive monetary policy stance appears to be working. Inflation expectations are well anchored.
Real bond yields turned positive and are at their highest level since the start of the pandemic. For an asset with no returns like gold, this is a grim environment. The US bond market competes with gold as a safe-haven asset in the growing uncertainty.
At the same time, the Federal Reserve’s monetary policy stance also supports the upward momentum in the US dollar. The US dollar index is trading at a 20-year high of over 104 points.
“This is not good news for the precious metal”
While gold is struggling in a difficult environment, some analysts, especially equity markets, are facing further uncertainty and increasing uncertainty. Faced with volatility, he remains optimistic that the precious metal can hold its ground. Gold has outperformed the S&P 500, although it has lost all of its gains this year. Although the index has regained the 4,000 level, it is still down about 16% this year.
Many market analysts suggest that stocks should go lower as interest rates rise. Steve Land, vice president and portfolio manager of Franklin Templeton’s Franklin Gold and Precious Metals Fund, said in an interview:
Gold’s role in times of crisis and uncertainty is to preserve value. There is no doubt that there are more moving parts in the global economy than there has been in a long time. Gold’s low correlation with the markets means it has some hiding place for investors.
