Markets Prepare for Hawkish Forecast while Bullion Shows Feat of Resilience

Kinesis Macroeconomic Analysis

As of today, the US inflation rate is not yet curbing its rally. After the 7.0% increase posted in December, analysts forecasted an increase to 7.3% in January. The data published by the Labor Department showed a new record, with a spike to 7.5%, the highest levels seen since 1982. At the same time, the yield of the 10-year Treasury bond reached – and surpassed – the 2% threshold, for the first time in 3 years.

In the wake of the price rally seen in the last few months around the world, it seems that this has been a deciding factor in sharply changing policy makers’ plans. Indeed, the pace of inflation has become the most important topic on the financial markets worldwide – a scenario that has already forced the Bank of England to increase rates twice. 

Looking at the European Central Bank, Ms Lagarde was finally less dovish in her last meeting, generating a solid rebound of the Euro. In light of this, many other second and third-tier central banks have also started to hike rates, or at least to prepare markets for a switch to hawkish policies.

Regarding the Federal Reserve, after the accelerating pace of the tapering process at the end of 2021, there are now no more doubts that the Fed will hike rates in March. The “at least” 3 rate hikes forecasted for 2022, has shifted to a much more aggressive target, with interest rates widely predicted to be above 1.50% by the end of the year – most likely to be in the 1.50-2 range, according to the CME Fedwatch tool.

It is clear that this scenario could be challenging also for the stock markets, while bond yields are now breathing, after having struggled for a prolonged period of a zero-interest environment.

Kinesis Gold Analysis

Despite rising inflation and US 10-year treasuries yields spiking above 2%, the gold price is continuing to show resilience. Indeed, bullion has managed to strongly remain above the $1,800 per ounce threshold.

After the announcement of US inflation data, gold jumped to $1,840, before slowing down in the evening, once the US dollar had recovered a few pips against the Euro and a large majority of currencies.

From a technical point of view, bullion is still trying to surpass the $1,835 threshold, while the first major support zone is represented by the $1,800 mark. Analysing the price in $/g, we are still in the 58.5 – 59 range.

We should note that rising inflation and the return of positive yields could present a challenge for precious metals. But so far investors are still trusting gold, which could be an interesting hedge in the case of market disruption. Gold also represents a hedge against the possibility that central banks will not be able to contain the current state of inflation.

Kinesis Silver Analysis

The silver price posted a bearish figure yesterday. Indeed, the price reached $23.7 in the afternoon, before losing around 3% in the evening, showing increased volatility. 

Today’s trading started with silver attempting a difficult rebound. The price has found support at $22.8 and could find new strength with a recovery of $23.10. However, a decline below $22.8 would open space for new falls, with a potential target for the $22-22.20 support zone.

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Carlo Alberto De Casa is an external Market Analyst for Kinesis Money.

He also writes as a technical analyst for the Italian newspaper La Stampa.

Carlo Alberto provides regular commentary for UK outlets including the BBC, Telegraph, the Independent Bloomberg & Reuters. He is also a commentator for CNBC Italy. He worked for Bloomberg as their Equity Research Fundamental Analyst before joining brokerage ActivTrades in 2011 to specialize in currency markets and commodities. In 2014 he published a book on gold and the gold market, followed by a new updated edition in 2018.

This report is not an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance.