Inflation remains foremost in the minds of traders and investors as the market awaits tomorrow’s US inflation data release.
Despite inflation remaining at elevated levels and considerably above the Federal Reserve’s target of 2%, a lot of money is already positioning itself for the post-rate hike world with gold one of the major beneficiaries of this forward-looking approach with the price climbing to its highest level in more than eight months.
Given the cautionary statements from senior Fed officials, including Chair Jerome Powell, about the need to adopt potentially unpopular measures to ensure inflation is tamed once and for all, the bullish run for gold is quite remarkable. Investors seem to be looking past the short-term reality of more interest rate hikes and instead focusing on the end to this hawkish approach at some point later in the year.
As such, it will only take one or two data points that don’t fit in perfectly with this narrative of inflation falling steadily over the coming months and central banks able to ease up on rate hikes for gold to come crashing down.
A move that was initially started back in November by a change in sentiment on how soon the Fed would ease up on its rate hikes, then further fuelled by the collapse of FTX and now continuing to surge on the back of a weaker US dollar is reaching levels far greater than the macroeconomic environment would suggest. How much more upside is there for gold? Or is it about to come crashing back down to reality?
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