By Swann Collins, investor, writer and consultant in international affairs. Eurasia Business News, November 7, 2022
Gold prices resisted on Monday as some investors took their profits after a sharp rise last week (a jump over $50), while markets awaited this week’s U.S. inflation data to get cues on the Federal Reserve’s rate hike path.
U.S. inflation data for October are scheduled to be released on November 10, 2022, at 8:30 A.M. Eastern Time.
Spot gold price fell today 0.44% to $1,676.30 per ounce by 03:37 PM NY Time, while U.S. gold futures rose 0.2% to $1,679.50.
A softer CPI for October will likely reignite the risk-on trade and will, by extension, help gold push higher.
Gold prices jumped more than 3% (over $ 50) on Friday November 4 to record its best day since March 2020, as data showing an uptick in U.S. unemployment rate in October dragged the dollar.
Moreover, the several rate hikes by the U.S. Federal Reserve since March 2022 threatens the U.S. housing market with collapse. Indeed, consumer confidence in the US housing market has plunged to its lowest level on record as steep mortgage rates crush demand, according to findings released by Fannie Mae on Monday.
Just 16% of consumers said they felt it was a good time to buy a house in October, according to Fannie Mae’s monthly survey. That figure marked a record low since the survey was first conducted in 2011.
These data fueled higher gold prices as they push the U.S. Federal Reserve a little closer to easing.
Now there is a consensus in the market that the US Central Bank will begin to slow down the pace of tightening monetary policy, because the unemployment rate in the country rose to 3.7%.
On November 4, gold prices rallied by 3.29% :
Investors understood that the Fed doest not fear to provoke a recession in an attempt to lower a strong inflation it caused with Quantitative easing and low rates for more than a decade (printing billions of paper currency out of thin air since 2008).
All eyes are now on U.S. consumer price index (CPI) report due on Thursday, November 10.
Although gold is a powerful inflation hedge, higher interest rates raise the opportunity cost of holding bullion.
Four Fed policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting in December.
The upcoming consumer price index data will define if it is a smaller or still large rate hike by the Fed to come.
Other data boost the gold prices growth. Indeed, central banks globally have been accumulating gold reserves at a furious pace last seen 55 years ago when the U.S. dollar was still backed by gold. According to the World Gold Council (WGC), central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022.
While inflation in the U.S. has remained high since summer 2021, there are growing signs that high interest rates are beginning to slow the economy, the housing market is slumping, and mortgage rates nearly doubling, after the Fed carried out aggressive hikes.
Gold traders agree that the long-term gold trajectory is up. Gold prices will rebound next year, despite higher interest rates. Traders expect prices to rise to $1,850 an ounce in early 2023. The Fed will have no choice but to pivot and lower interest rates in 2023 (in Q2 or Q3), in order to reduce the impact of the coming recession.
Read also : How to invest in gold
In addition, the Western sanctions against Russian gold, taken between April and June this year, increased pressure on the gold market and helped the price to rise. Russia is indeed one of the main gold producer in the world.
Spot silver fell 0.24% to $20.90 per ounce, platinum rose 2.19% to $991 and palladium was up 1.95% to $1,981.
The best performance for gold in 2022 was in Turkey, where the lira fell 52% amid staggering 80% annual inflation. Since the beginning of the year, the price of gold has doubled, helping forward-thinking investors protect their assets from the rapid rise in consumer prices. Turks have traditionally invested in the precious metal, and many still prefer it as a store of value, according to a survey conducted by the Areda Survey in May. Nearly 43% of respondents said they consider gold to be the best form of investment. At the end of September, inflation in Turkey reached 83.5 percent, which is 3.3 percentage points more than in August. The rise in consumer prices has hit a record since 2000.
Europe is also hit by high inflation. Euro area annual inflation is expected to be 10.7% in October 2022, up from 9.9% in September according to Eurostat. To fight this inflation, the European Central Bank (ECB) raised the key interest rate by 75 basis points to 2% per annum. This is the third rate hike announced by the Frankfurt institution since July.
The inflation rate in Germany, measured as the year-on-year change in the consumer price index (CPI), crossed +10.0% in September 2022, highest rate since 1951.
The exchange rate of euro/dollar now is still : 1.00 euro for 1.00 dollar
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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.