Just last week we were discussing the opportunities ahead that would make gold strong in the near future. And here it is! Finally gold moved on to the upside and there was a complete turn of tables as gold once again witnessed safe haven buying.
There was enough evidence to prove that gold was definitely here to stay. Once again, it has proved its worth as a safe haven asset in times of uncertainty and also as a hedge against inflation. Strong reversal signs from U.S. and EU markets, the U.S. bond from its peak and the subsequent fall in the USD made markets run on extreme short coverings and extremely oversold zones. This paved way for gold which is expected to scale towards the $1732-1735 bracket very soon.
Gold prices jumped more than 2 per cent on Monday boosted by a dip in the US dollar and bond yields, as recent lows enticed investors and also sparked a rally in silver in potentially its best day since late 2008.
According to the Bullion King Of India, “The two precious metals are catching a solid safe-haven bid as the global stock and financial markets remain jittery, as media outlets are focusing on a desperate Russian president that may resort to using nuclear weapons in his war with Ukraine, and amid bullish outside markets that see higher crude oil prices and a weaker U.S. dollar index on this day and not forgetting the geopolitical and economic crisis.”
Fed and Dollar- Gold soared the most since March, helped by a continued decline in Treasury yields, as traders weighed concerns that central banks’ monetary tightening will lead to recession and the possibility that bond rates may have reached a peak.
Bullion extended its first weekly gain in three weeks, as lower bond rates boosted the appeal of the non-interest-bearing asset. Silver gained the most since February 2021 as traders bought back their previously short positions with the dollar and bond yields moving lower. It seems clear that apart from the above-mentioned concerns- what’s driving the precious metal right now is the dollar- it continues to remain important and remains important for gold prices, although even its impact on the metal appears to have weakened.
Central Banks- Central banks will also continue to support gold prices with their buying
The fact that the Fed and the ECB are leaving interest rates low could provide support for gold alongside weak economic growth. However, gold appears to be in a holding pattern for now and looks strong from here.
Global stock and financial markets and Recession. There are reports and rumours swirling that investment bank Credit Suisse may be in serious financial trouble. If a major global investment bank may be on the verge of collapsing and the dictator of the nation with the most nuclear warheads in the world has his back against the wall, while at the same time major global economies are battling inflation and teetering on recession, it appears increasing numbers of the public are now opting to possess gold and silver. It will be important for the gold and silver bulls to show follow-through price strength this week, which would then begin to suggest sustained price uptrend, could develop in both metals.
once again, it appears when the heat in the marketplace gets turned up significantly hotter and trader/investor anxiety rises above what could be considered normal or even a bit elevated levels, demand for the safe-haven metals kicks in more aggressively
As mentioned above, there are a number of factors that have influenced precious metals, but we need to see gold and silver in the broader perspective. Comparatively, gold has so far been one of the best-performing assets in its class in 2022. Gold has outperformed U.S. bonds, foreign bonds, S&P 500, foreign stocks, NASDAQ and US Treasury Inflation-Protected Securities (TIPS)
“Traders will now look to US jobs data due on Friday for more clues on the future path of central bank monetary policy. That means bullion could be in for more volatility.” Shared the Bullion King.
Now as geopolitical and recessionary crises escalate, we will see more and more investors shifting focus to gold as a move of their defensive strategy. The rise in demand for such high-quality liquid assets will put gold at the top position per se returns generation in its asset class.