(Kitco News) The volatility of gold is relatively low compared to other assets because the precious metal retains its “mild bull market” status and comfortably trades between $ 1,800- $ 1,900 an ounce. But according to MKS PAMP, don’t expect gold prices to rise until a little confidence returns to the market.
With fears of inflation leading to fears of a recession, the market has shifted, with equity investors choosing money over safe havens such as gold, said MKS PAMP metals strategist Nicky Shiels.
“There has been unprecedented damage to equities (and other assets), where the money is back into cash / US $, less heaven. Trust has to come back,” Shiels wrote in a note Thursday. “With the sale last week on SPX, its amendment is in line with the average correction seen in the post-WWII recession, but it is now the 4th worst ‘non-recession’ correction in the same period. We are in the market.
He explained that the irony for gold bulls is that precious metal should see a combination of lower yields and higher movement in US stocks to rise to $ 1,880 per ounce.
As things stand now, gold has more buyers at $ 1,800 and $ 1,900 per ounce. “There is a significant lack of interest from the investment community (outside of the retail coin / bars!),” He said. “The carnage in the stock markets and other asset classes has at least put the player at bay.”
The aggressive tightening of monetary policy is a potential price rally trigger if the Fed “breaks something.”
Fed funds only agreed 1.75% (CPI at 8.6%) Fed inflation last week [and] Took… 75bps increase. Overall, the details of the Fed’s statement are very bad (they acknowledge that the economy is deteriorating), and as the data continues to disappoint, the recession debate has grown and commodity prices respond to fears of demand destruction, “Shiels explained.
And as the Fed continues to make adjustments to its “unconditional” fight for price stability, the risks of recession are becoming increasingly visible in daily macro data.
“Today’s sentiment hasn’t been helped much by the ugly PMI data. Specific consumer and inflation-sensitive sectors such as travel are still June’s biggest downturn and the poster child of skyrocketing inflation and stressed customers,” said Shiels.
The latest flash PMI data shows “the weakest rise in US private sector output since the January Omicron-induced slowdown in June,” according to a recent report by research firm IHS Markit.
According to the report, the June Flash US Manufacturing Managers (PMI) index fell to 52.4, marking a 23-month low. The service sector fell to PMI reading 51.6 in June, marking its five-month low.
Gold is a bad outcome if the Federal Reserve is too hawkish, Shiels pointed out.
“To get inflation and macro backdrop right, one needs to get the goods right, and if the Fed continues to raise the prices of commodities and the high US $ in +50bp clips, it is an additional form of monetary tightening; or behind the big tightening wheel and bear gold narrative. Describes the subscription regression of the investor based), ”he said.
At the time of writing, August Comex Gold’s futures were trading at $ 1,826.60, down 0.64% on the day.
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