Since the beginning of the year, gold denominated in U.S. dollars has lost more than 3 percent of its value, while silver has lost more than 7 percent. During that time, the price of oil has increased by 69 percent and copper by 25 percent.
This disparity may be due to the business cycle and the powerful economic expansion following the COVID-19 crisis.
However, the powerful economic stimulus measures are slowly tapering off, which could lead to a shift in the cycle phase to the next phase, which is cash. Energy or industrial commodity prices may stabilize or begin to fall, while precious metals prices may rise on a capital flow basis.
Current situation on the gold market
An ounce of gold rose above $1,820 on Tuesday, reaching 2-month highs amid rising inflation expectations coupled with dovish statements by central banks.
U.S. household inflation expectations rose to a record 5.7 percent for the year as consumers continue to feel the effects of rising food and gasoline prices, as well as higher rents and college tuition, according to a New York Federal Reserve Board survey released Monday. Meanwhile, Jerome Powell, Fed chairman, stressed last week that policymakers will wait for supply chain disruptions to ease and inflation to slow, promising to be patient before raising interest rates. Charles Evans, president of the Chicago Fed, said Monday that while he is concerned about inflation remaining higher than previously forecast, he still believes the Fed will not raise interest rates until 2023.
Changes at the Fed, and the impact on the markets
It appears that the market has begun to consider the possibility of a change in the Fed chair. FOMC member Lael Brainard has entered the race for leadership of the world's most important central bank. Based on her actions and statements, she may be considered by the market as a softer monetary policy maker than Jerome Powell. This, in turn, could mean that if she were to actually become FOMC chair and Fed chief, interest rate hikes might not happen as quickly as the market expects. This, in turn, could cause yields in the U.S. not to rise as quickly, and could even fall, which could also be more favorable for precious metals.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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