There is a new battle in the gold market as the precious metal continues to benefit from the weak US dollar and falling bond yields; however, the changing risk perception is creating a new headwind for the precious metal as the stock markets end their seven-week streak with a 6 percent rally.
Risk sensitivity in the markets is an important indicator
As we have reported on Kriptokoin.com, the gold market has reached the critical psychological level of $1,850 this week as the US dollar fell from its highs in the early months of the month. managed to stay stable. The US dollar index finished the week below 102 points, down nearly 3 percent from its 20-year high. Meanwhile, bond yields fell nearly 13 percent from their recent peaks of over 3 percent to 2.74%. Nicky Shiels, head of metals strategy at MKS PAMP Group, said the weaker US dollar and falling bond yields could help gold rise solidly above $1,850 in the short trading week. However, he added that risk sensitivity among stock investors will be an important indicator, noting that:
The missing piece is if stocks are currently on a short-term rally and recession, stock crash or There is limited panic about Fed increases.
According to some market analysts, risk sensitivity in the market has improved, inflation fears have decreased. Investors breathed a sigh of relief on Friday after the U.S. Department of Commerce announced annual inflation rose 4.9 percent from 5.2 percent in March and a 5.3 percent peak in February last month. Inflation fell in line with market expectations. The data also reported healthy consumption. Some economists have said the inflation data gives the Federal Reserve room to raise interest rates less aggressively in the fall and through the end of the year.
“Gold will be an attractive safe haven”
On Wednesday, the Central Bank signaled that it is trying to increase interest rates by 50 basis points in the next two meetings in line with market expectations. However, for many analysts, the current risk sentiment is unsustainable as inflation pressures are far from over and ultimately bolster gold. Billionaire Bill Ackman said the Fed must now raise interest rates to beat inflation and protect the economy. Sean Lusk, Co-Director of Commercial Hedging at Walsh Trading, said in a statement:
Energy prices continue to rise and will increase inflation pressures. Inflation will add to rising recession fears, making gold an attractive safe-haven asset.
Blue Line Futures Chief Market Strategist Phillip Streible said he sees the jump in the stock markets as a classic bear market rally. He also added that he sees gold as a critical safe-haven asset, continuing his speech as follows:
Technically, gold at $1,850 per ounce looks good. Not only has gold seen a solid bounce from last week’s low, but its volatility measure has plummeted. Gold does well when it sees low volatility. Investors are affected by this stability when there is uncertainty everywhere.
There are also negative views on gold prices
Not all analysts are optimistic that gold prices can hold the line at $1,850 per ounce. While inflation has peaked, Bark Melek, head of commodities strategy at TD Securities, said it’s going to be pretty tough until 2022. good thing. The Fed will continue to raise interest rates and this will be negative for gold. I still like to rally sell in the gold market.
Some analysts have indicated that the Federal Reserve will increase returns on inflation within the aggressive tightening cycle, making gold less attractive as an inefficient asset. Commodities economists at Capital Economics said:
Looking specifically at gold, the US TIPS yield is now comfortably in positive territory, which will reduce investment demand for gold as it does not yield returns
US data
US markets will be closed on Monday for Memorial Day, but it will be a busy week for economic data. On Friday, economists and analysts are waiting to see the latest nonfarm payroll report to see how fair the labor market is in the current economic environment. While key data reports will be released next week, market analysts said they will have little impact on interest rate expectations. Economists said the central bank appears ready to move 50 basis points at its next two monetary policy meetings, regardless of the data.
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