Relevance up to 07:00 2022-06-14 UTC–4
Gold, like any other asset, is not going to go against the Fed. The problem is that no one knows exactly where the Fed’s policy will lead. Optimists are counting on a soft landing–a situation in which the US economy will avoid recession. Pessimists trumpet stagflation, years of above-average inflation, and below-average GDP growth. Such an external background is favorable for the precious metal and keeps its quotes near $1850 per ounce.
According to World Bank forecasts, the global economy will expand not by 4.1%, as expected in January, but by 2.9% due to the negative impact of COVID-19 and the armed conflict in Ukraine. This is the base scenario. If energy costs continue to rise, global GDP growth will slow to 2.1%.
War in Eastern Europe, lockdowns in China, and disruptions in supply chains create the same stagflationary environment as in the 1970s and hinder economic growth. Because of this, many states may face a recession. The situation is exacerbated by a strong US dollar, which makes oil and other energy products even more expensive for non-US consumers.
Dynamics of the real effective exchange rate of the US dollar
When the entire investment world is talking about stagflation and economic recession, and geopolitical risks are high, it is not surprising that gold fans continue to believe in the recovery of the upward trend. According to Silver Bullion Pte and StoneX Group forecasts, the precious metal will be able to return above $2,000 per ounce. Citigroup expects it to be at $1,900 an ounce on a 6-12 month time horizon, although it warns of a fall to $1,825 over the next three months amid aggressive monetary restrictions from the Fed and the associated strengthening of the US dollar.
In the ranks of the “bears” on XAUUSD, on the contrary, there are solid optimists. Metal Focus sees gold falling to $1,670/oz as inflation slows and US Treasury yields continue to rally. According to the company, the Fed will be able to achieve a soft landing, as thanks to consumers sitting on bags of money, the US economy will be able to withstand the cycle of raising the federal funds rate. Let it be as aggressive as the derivatives market currently expects. At the same time, Metal Focus makes a reservation that the precious metal looks better than stocks and bonds, which will hold back the fall in prices for it.
In the short term, the dynamics of XAUUSD will be affected by the release of US inflation data for May. If consumer prices slow slightly, the Fed’s aggressive monetary tightening plan will continue to work. And this is a direct path to the growth of bond yields and the strengthening of the US dollar.
Gold, Daily chart
Technically, the consolidation of gold in the range of $1825-1870 per ounce allows placing pending orders to buy and sell near its upper and lower limits. At the same time, the Broadening Wedge pattern remains relevant, which makes it possible to sell the precious metal on the rise to $1890 and $1915.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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