Markets are plunging inflation accelerating to new four-decade highs in March, after rising 8.5% year-on-year. In addition, the US Producer Price Index (PPI) rose 11.2% from a year earlier in March, setting another new record.
Many economists forecast March data to signal a peak in inflation, citing a slowdown in core inflation, base effects and some easing in supply chain issues.
However, the gold market continues to grow, without fear of an aggressive Federal Reserve. Comex June futures traded up $ 1,981.00 on Wednesday, up 0.25% on the day.
“If this is really ‘peak inflation’ combined with the Fed’s impending 50-point increase in gold, gold should be traded very defensively… it is not. “High inflation Prints = higher gold” instead of “high inflation = hawk Fed = lower gold,” said MKS PAMP strategic metal analyst Nicky Shiels.
The problem is that even if inflation slows down, it is still running at more than 8% from a year ago. “Reversing the trend (inflation growth) is a welcome sign from an economic point of view, but sometimes the market loses sight of the overall levels; pace and direction matter, but so do key levels,” Shiels said. .
Basic levels matter as they put everything in perspective, the metal general added, noting that even the Federal Reserve’s upcoming QT is only starting after the central bank’s balance sheet was allowed to expand to $ 9 trillion.
“Liquidity is withdrawn, [but] “It’s from a formidable base – the Fed’s $ 9 trillion balance sheet – which may explain why there was no expected downturn in the risk markets,” he said.[Same with] increasing real returns… the base remains negative and very low historically. [This] explains why gold ignored higher interest rates and continues to investigate its uptrends.
The gold market is seeing this and seems to have gone through two major 50-point interest rate hikes priced by markets at the FOMC meetings in May and June.
“Six months ago, if the market knew that gold was seeing continuous 50 bp increases, no one would have expected 1) that gold would be above $ 1900 / oz and 2) that gold would hold, it would trade aggressively, “refute any $ 50 + withdrawals,” Sils added. “The question should be, is 50 bp enough? Gold claims it is not. As soon as gold prices start to respond – lower – to the threat of Fed increases of 75/100/200 bp, that’s a sign that the market believes that interest rate policies are manipulating inflation. “
According to Shiels, the possibility of an even more aggressive tightening is the reason why “the great test of gold has not yet come,” according to Shiels. Right now, the price of gold is driven by geopolitics and inflation. However, the resilience of the metal against the expected market volatility is what will be most important in this year’s price course.
Shiels explained: “The real estate interest rate shows that the market has not even started to tighten significantly. It explains why US stocks are holding up, but once the significant tightening / QT starts, gold … will be tested. The idea that the “QE [quantitative easing] The winners after 2008 and more recently after 2020 (which were cryptocurrency / stock / technology / meme stock, etc., NOT gold) will be the biggest “lost QT” is convincing. “This is the big ‘test’ for gold – does it obey ‘symmetry’ and does it not unfold as much as the QE winners (like stock / crypto / technology) in QT since it did not actually outperform these assets along the way?”
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided. However, neither does Kitco Metals Inc. nor can the author guarantee such accuracy. This article is for informational purposes only. It is not an incentive for any exchange of goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept liability for losses and / or damages resulting from the use of this publication.
