Kinesis Macroeconomic Analysis
The last day of a volatile week of trading has pointed towards another day of losses as the fallout from the Federal Reserve’s surprisingly hawkish rhetoric, as well as tensions over Ukraine, rattle markets.
Germany is suffering some of the sharpest declines with the DAX Index prices already on the slide before the latest GDP data showed Europe’s largest economy shrank on a quarterly basis, while the annual figure also came in below forecast.
With France also enduring a punishing week, the Stoxx 600 Index, the basket of European stocks is on course for its worst monthly performance since October 2020. This is due to the central banks turning the music off at the free money party, with 2022 set to be a year of multiple interest rate hikes.
The spark for this reduction in monetary stimulus has been rising inflation, with countries recording prints of 5%. While this high inflationary environment and subsequent hawkish reaction from central banks has been negative for equity markets, notably the growth-focused tech stocks, commodities have been a notable beneficiary.
Kinesis Gold Price Analysis
While gold can be considered a commodity, due to its use in a number of industrial applications such as in phones and lateral flow tests - which we have all become so familiar within the last couple of years - its primary role is as a financial asset class.
As such the Federal Reserve’s announcement earlier in the week, that it could well start increasing interest rates as soon as March, sparked a plunge in the price of gold.
Suddenly the support the metal had been finding as investors sought its sanctuary amid declines on equities vanished; gold was heavily punished for its lack of yield with signs that interest rates are likely to rise sooner and faster than had been expected.
The warning signs for gold had already been there. It was positioned for a fall, with the price largely drifting along, despite the supposedly supportive element of gold as a hedge against inflation.
Gold’s sharp fall, from challenging $1,850 an ounce a few days ago to now trading below the psychologically important threshold of $1,800, raises questions of how much further it can fall yet.
That said, the price plunge may now attract buying interest, as investors view gold as much better value and push it back above $1,800 once again.
Kinesis Silver Price Analysis
Silver has suffered a similar plunge to gold, with the stellar rise of a week or so ago that saw the price surge above $24 an ounce - now, a distant memory. Unfortunately, that stellar performance did prove to be just a flash in the pan, with the price now hovering around $22.50 an ounce.
However, just like the sharp rise proved too much to sustain, the negative plunge may also prove overdone with this more volatile metal than its golden brother, likely to recover some of these losses over the coming days.
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