More and more representatives of central banks seem to be withdrawing from the belief that the current inflation is temporary. The new perception of the situation may in turn increase the investment attractiveness of gold, which is gaining in value. On Friday morning, the price of an ounce is above $1,800.
The Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan - this week the big central banks have shown that they seem to be moving towards tightening monetary policy. Their forecasts paint a picture of inflation that may persist longer than originally expected.
ECB revises inflation forecast
The Bank of England surprised the market yesterday by raising its main interest rate by 15 basis points to 0.25%, and the ECB declared an end to its pandemic asset purchase program by March 2022.
It seems that a hawkish turn in the Bank of England or the ECB may have influenced the weakening of the USD, which may also project the price of gold, which crossed $1,800 per ounce this morning.
The change in inflationary projections for 2022 is quite evident from the European Central Bank. Back in September, ECB experts predicted that the CPI in the next year will amount to 1.7 percent, while yesterday they already presented a forecast of 3.2 percent.
The difference seems very significant, which may have worried investors and turned their attention to gold as a potential hedge against price increases in the economy.
Falling interest rates on bonds
The situation in the bond market is also worth noting. Although the Fed on Wednesday seemed to have a hawkish stance, the yields on US Treasury securities started to fall from around 1.66% to 1.41%.
The drop in bond yields could also be good for gold prices and, interestingly, comes at a time when the Fed is announcing the end of its asset purchase program and three interest rate hikes in 2022. This, in turn, may be indicative of a "buy the rumors, sell the facts" scenario.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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