Analysis by Golden FX Link Capital business manager Nhim Kosol
Gold investors appear to be calling the Federal Reserve’s bluff that it will be able to get inflation under control as prices continue to hold around the $1,840+ per ounce since last week’s breakout move, Kitco said.
The base metals website reported that gold prices traded near a two-month high, but Wednesday’s breakout came as US bond yields pushed to their highest level in more than two years.
The 10-year yield is currently trading at 1.83 per cent, down slightly from Wednesday’s rise to 1.87 per cent. Treasury yields jumped more than 50 basis points since late last month and are hovering around -0.60 per cent, it said.
The Wall Street Journal quoted Federal Reserve chair Jerome Powell saying “inflation is high because supply and demand are out of whack”.
“The Fed can’t solve shipping or supply-chain bottlenecks, but higher interest rates can eventually cool demand by slowing hiring and income growth. Officials are hoping that inflation declines as the supply problems ease and demand shifts from goods, where prices rose sharply last year, toward services, where inflation has been less extreme,” said the business newspaper.
Interest rates are expected to increase by three quarter per cent points this year, according to central bank officials last month.
As a result, their benchmark short-term rate would rise to a range between 0.75 per cent and one per cent by the end of the year, up from its current level near zero.
Although rising consumer price pressures are leading to expectations for more aggressive monetary policy action from the Fed, when policy makers are trying to fight inflation into a slowing economy, it could lead to a growing risk of a policy error.
Golden FX Link Capital business manager Nhim Kosol said: “I believe rate hikes will have little impact on inflation, which continues to be driven in part by global supply chain constraints.”
Technically, he added that gold prices could be traded in a range of $1,830 to $1,847 per ounce as markets are looking for a break-out move to buy gold if it reaches a new higher high above the prior high of $1,847. For this week’s trading recommendation, investors should buy gold at $1,830, setting a stop-loss at $1,815; and a take-profit $1,865.
