Is The Fed At Peak Hawkishness Rising Sentiment In Gold Market Says Yes
– The gold market is ending its third week in negative territory. Still, bullish sentiment has improved among Wall Street analysts and retail investors as the Federal Reserve lays out its monetary policy plan through the summer.
Gold’s short-term outlook among Main Street investors has improved sharply following the U.S. central bank’s highly anticipated monetary policy decision. Last week bullish sentiment among retail investors fell to its lowest level in eight months.
Although a strong U.S. dollar and rising bond yields present challenging headwinds for gold, many analysts have said that these markets could see a shift in momentum. While the U.S. central bank looks to raise interest rates by another 50 basis points at the next two meetings, Federal Reserve Chair Jerome Powell pushed back on market expectations of a bigger 75-basis point move.
“I think we have reached peak hawkishness with the Federal Reserve. Other central banks will have to step up with their tightening measure,” said Philip Streible, chief market strategist at Blue Line Futures. “The U.S. dollar looks a little toppy as other central banks like the and the can’t ignore inflation for much longer.”
Its Been Suggested The Fed Could Raise Rates Eight Times In 2022 Alone Do You Think It Can Do That
If inflation stays strong, which it should do, and employment is still robust in the US, then the Feds decision is quite easy fight inflation. So we probably will see rate rises coming through in the short term which is what the market is already pricing in, as you say. Where we are sceptical is that the Fed can do this without creating significant negative feedback loops in interest rate-sensitive parts of the economy such as the housing market.
We are also worried by reports of poor liquidity conditions in Treasury markets emerging before the Fed has even begun to sell down its own Treasury holdings . These are supposed to be the deepest and most liquid markets in the world.
The question is whether the Fed can step away from Treasuries without triggering disorderly market conditions. We think the probability that this will happen is much higher than the market believes. This is a very counter-consensus and unfashionable view.
Gold In The Age Of High
The best thing you can do is know how to have a balanced portfolio.Ray Dalio, Bridgewater Associates
In an article headlined Robots conquered stock markets/Now theyre coming for bonds and currencies, Bloomberg finance reporter Lananh Nguyen tells us: In the most liquid equity markets, more than 90 percent of trades are executed electronically, according to estimates from Greenwich Associates. That compares with 79 percent in global foreign exchange, 44 percent in U.S. Treasuries and 26 percent in U.S. corporate bonds, with the most room for growth in the latter two markets, according to McPartland at Greenwich. Just this year, Morgan Stanley and Goldman Sachs requested counterparties forgive rogue, machine-driven trades that caused a $41 billion flash crash in a matter of seconds. Though concentrated in a single stock, such anomalous events serve as a cautionary tale on how a full-out, machine-driven panic might evolve on a larger scale.
Ready to include a safe haven in your portfolio plan?DISCOVER THE USAGOLD DIFFERENCE
USAGOLD note: Blain becomes introspective in the run-up to the holidays. Chasing value is his theme
Gold knocking once again on $1800s door, silver looking revitalizedHamilton: Delayed secular gold bull should be resuming
Chart of the Day
Gold and silver price performanceChart courtesy of TradingView.com
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Impact Of Import Duty On Gold Price
Due to the fact that gold is not produced in India, it is imported from other nations, and import tariff plays a significant impact in price variations. Because of the large number of transactions, the central bank’s choice to buy or sell gold can have an impact on the price.
Other factors that influence gold prices in India include geopolitical considerations, government reserves, favorable monsoon rains, and the jewellery market. The price of gold in India is influenced by a variety of internal and external variables. It’s also impossible to ignore the role of India’s growing population in driving up gold demand.
Consider the above principles and make sure your investments are in line with your investing strategy and risk tolerance. While gold is a smart investment during these times, it comes with its own set of concerns. Before you invest, be sure you have a complete understanding of the situation.
Rise In International Gold Prices
The price of gold in India is affected by its international price. Over the last few weeks, rising number of coronavirus cases, increasing US-China tensions, and overall economic slowdowns have led to a constant rise in gold prices around the world.
Once investors lose hope of the markets recovering in the short-term, they tend to gravitate towards safe havens like gold. While that explains the rise in gold prices, is it likely to continue?
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Why Should You Invest In Gold
Gold is viewed as a standard value for currencies all over the world. When the stocks are down, gold goes up. Investing in gold will help you balance your portfolio. Gold also performs better in times of economic uncertainty and it is called as a crisis commodity as it has excellent resilience. It acts as a hedge against inflation. Any decline in the value of dollar increases the gold prices.
Gold is also a discreet method of transferring wealth to the next generation. The demand from the Chinese and Indian government is helping keep the value of gold high.
Current Price Vs Current And Future Roles
For those who see history and math as guides rather than barbarous and outdated disciplines, their convictions regarding golds role, and even price trajectory, do not wane or rise simply due to the paper price of gold.
To some extent, and despite Basel 3, gold remains openly manipulated by a handful of central and bullion banks who are terrified of golds shine for no other reason than it embarrasses currencies falling deeper into discredit.
But we track the movement of physical gold every day, and can say with blunt clarity that the paper trade in gold has zero to do with the those otherwise barbarous forces of the actual supply and demand of this precious metal.
In short, the paper price of gold has become a fiction accepted as reality, which is not surprising in a financial landscape which defies every measure of honest price discovery or basic capitalism.
As for the never-ending gold vs. BTC debate, it would be wrong to say Bitcoin hasnt taken some market share away from gold, but at less than $1 trillion, BTC is not going to destroy golds $10T market share.
In short, the current gold price is a less important topic than its current and future role as historical insurance against mathematically-failing financial and economic systems around the globe.
More on that later.
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Do Central Banks Still Have The Right Tools To Fight Inflation
They dont have the tools to control a commodity supply shock or to control the un-jamming of global supply chains, thats for sure. So stagflationary forces are clearly difficult to manage. Stagflation is an economic condition in which growth is low while inflation is high.
However, they definitely do have the tools to reduce aggregate demand in the economy. If the Fed were to raise rates to, say 5%, very quickly, inflation could be reduced very quickly because anything bought on credit would suddenly be much less affordable and demand would drop. The question is whether they could do that without triggering very significant asset price deflation, without pushing the economy into a very severe recession. We think the answer is almost certainly no.
So its not that they dont have the tools to control inflation. Its more a question of whether central banks are brave enough to act and whether they can control the unintended consequences of a sudden tightening in monetary policy.
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The combination of roaring energy prices, grain prices, base metal prices is culminated in dramatic inflationary pressures that continue to be the major underlying support behind gold moves higher, David Meger, director of metals trading at High Ridge Futures, said in a Reuters report.
In addition, were seeing significant amount of safe haven bids in the gold market as equity markets have come under pressure due to major concerns on the geopolitical front, Meger added.
Soaring oil prices and the Ukraine war have slammed appetite for riskier assets. US President Joe Biden announced on Tuesday a ban on Russian oil, with the UK also expected to follow.
Bullion, which has risen nearly 13% this year, is considered a safe store of value during times of geopolitical uncertainty and rising inflation.
Meanwhile, palladium gained another 2.0% after hitting a new high of $3,440.76 an ounce on Monday.
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How Likely Is It That The Global Economy Falls Into Stagflation And How May Gold Perform In This Environment
The risk of stagflation around the world is certainly rising. Europe may feel it most acutely, fuelled by a combination of soaring commodity prices, energy dependency, and a weaker economic and financial environment all of this now exacerbated by the war in Ukraine.
And while stagflation is also a risk for the US, it may not reel to the same extent. Both hard and soft economic data still signal that the US economy is resilient. However, if the spread between long and short maturity US Treasury bonds a historically reliable bellwether for the economy continues to flatten or inverts, it may signal that market participants anticipate a contraction down the line. Should energy and food prices stay high, stagflation risks might just be realised.
In October last year we wrote about golds historical performance during stagflationary conditions. With these risks now rising again we want to highlight the findings of that analysis. Needless to say, stagflationary environments are not good at all for financial markets, nor the economy. Slowing incomes and rising prices are an uneasy combination to say the least. Equities are historically hit hardest, while commodities and gold have done well . We are already seeing these dynamics play out in the beginning of 2022 and gold appears to be doing exactly what investors would expect it to. Performing well as a hedge when other assets are not.
Gold Price Today: Should You Buy Yellow Metal After Us Inflation Surge
3 min read.Asit Manohar
- Gold price today: Spot gold price has breached its latest high of $1852 per ounce and now it may give fresh breakout at $1865 levels, believe experts
|Listen to this article
Gold price today: After US inflation logging steepest rise in last four decades, gold price across world has been ascending. Spot gold price has breached $1855 per ounce hurdle whereas Multi Commodity Exchange or MCX gold rate has climbed above 49,000 per 10 gm levels. According to commodity market experts, market has already discounted US Fed’s hawkish stance on interest rate hike and now precious yellow metal price is ascending due to global inflation concerns that may further worsen as crude oil prices are still above $90 per barrel in international market.
Speaking on gold price triggers Anuj Gupta, Vice President at IIFL Securities said, “US inflation has registered sharpest year-on-year rise in last 40 years that may further worsen the global inflation situation. Apart from this, crude oil prices are still above $90 per barrel and any negative development in Russian Ukraine conflict can push it in three digit figures. Yesterday, spot gold price has touched $1865 levels breaking its hurdle placed at $1855 levels. So, gold price is in uptrend and one can buy this precious metal at current levels for immediate target of $1880 and short term target of $1920 levels.”
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The Factors That Have Investors Turning To Gold
Stock markets remain shrouded in a thick blanket of risk triggered by negative news from around the world.Stephen Innes, head of Asia Pacific trading for the foreign exchange firm Oanda.
Fears of the consequences of the trade war on an overheating and leveraged economy have been swirling for months, but Wall Street players chose to blindly ride the bull run until those threats became market realities. Stock market sentiment quickly shifted in the second week of October. Below are some of the issues rattling investors.
Gold Gives Up November Gains
The gold price dropped from $1,783.90 an ounce at the end of October to $1,763.90 on 3 November, as the US Federal Reserve indicated in a statement that it would begin reducing the monthly pace of its net asset purchases by $10bn for Treasury securities and $5bn for agency mortgage-backed securities.
The price then moved up to a five-month high of $1,872.80 an ounce on 17 November, as the Fed indicated that it would not rush to raise interest rates. The gains were accelerated as the Bank of England decided against raising its interest rates, against expectations. Higher interest rates can be bearish for gold as investors tend to shift their money out of gold holdings into assets that pay interest.
However, the gold price subsequently dropped back as the US dollar strengthened in response to stronger US retail sales, and a rise in US Treasury yields following the renomination of Federal Reserve chairman Jerome Powell for a second term.
The market found support towards the end of November around $1,780 an ounce, close to its 50-day and 200-day moving averages , as a new Covid-19 variant emerged. But the price slid lower to $1,776.50 on 30 November, and continued to decline into early December, falling to $1,762.70 on 2 December.
David Beatty of deVere Group noted:
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Factors Affecting Gold Rates: An Investors Guide
From young, weâve been taught the value of gold from childhood stories of pirates, princesses, and leprechauns. We have grown to know its distinct yellow shade, and its perceived value as something to covet. As such, gold is one of the best-known assets or commodities in the world.
But if youâre thinking of jumping into the precious metals game, you must realise that goldâs monetary value is actually derived by several, often contrasting, market forces. So, before you go out digging for gold, hereâs what you should know.
The Fedno Where To Go But Crazy
Dramatic words are not enough, so lets stick to dramatic facts and a quick glance at a simple graph of the Feds embarrassing balance sheet
Although the media and headlines ignored the staggering repo crisis of September of 2019 as a minor glitch in the plumbing, it was, in fact, a neon flashing sign of a looming/brewing credit and financial crisis.
When US commercial banks in the autumn of 2019 were staring down the barrel of a rising USD and rising interest rates, they stopped trusting each others collateral to make over-night loans.
As expected, the Fed stepped in as the lender of last resort and began mouse-clicking hundreds of billions of dollars out of thin air per month to backstop the banks who created the Fed back in 1913.
Such money printing explains the parabolic move up and to the right of the balance sheet plotted above.
That is, the Fed had to create money to buy its own Treasuries which foreign buyers no longer wanted.
But what almost no one is noticing today is that the problems facing the Fed and Uncle Sams otherwise unloved and unwanted IOUs in 2019 have only been made exponentially worse.
That is, the recent actions by the US and EU to Freeze Russian FX reserves for not towing the Western line is telegraphing to the rest of the world not to trust US Treasuries.
Needless to say, if US Treasuries are now the ugliest girl at the global dance, who else is gonna buy them, and with what money?
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Gold Price Approaching Record High As Ukraine Inflation Risks Mount
Gold extended its blistering rally on Tuesday towards an all-time high as investors made a beeline for the haven metal on mounting fears about the Ukraine crisis and rising inflation.
Spot gold surged 3.5% to $2,068.07 an ounce by 12:10 p.m. ET, within touching distance of its peak of $2,072.50 set in . US gold futures also jumped 4.0% to $2,076.70 an ounce in New York.
Gold And Fiat Currencies: An Inverse Relation
Many countries used to adopt the gold standard i.e. the value of the countryâs currency or paper money was pegged to the price of gold. For example, if an ounce of gold was US$1,000, then one US dollar would be 1/1000th of an ounce.
Today, this is no longer the case. Most governments have migrated to fiat currencies, where the value of the currency is based on factors such as monetary supply or trust in the government to repay the countryâs loans. While this comes with added risk, it gives governments freedom to increase or decrease monetary supply based on their economic goals, and not based on how much gold they can hold in their treasury.
This also means that when trust in the government or economy falls, the value of their respective currency often falls with it. In such scenarios, many investors turn to gold, to prevent their wealth from eroding on the back of currency devaluation.
Furthermore, when the greenbackâs value increases against other currencies, this will lead to a depreciation of gold prices. This is because investors ex-US would need to look at the price of the commodity in their local currency , and hence, the demand for gold would decrease â and vice versa.
As such, gold tends to have an inverse relationship with the US dollar. As the strength of the US dollar rises, gold prices tend to dip. This is why many gold investors keep track of the US dollar and Foreign Exchange rates
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