The recovery in the US and the threat of the US Fed to increase interest rates drove some investors away from gold. But the Covid-19 pandemic is still around, and it would not make sense to assume that everything is back to normal. But according to these experts, gold fiadollar is good news for yellow…

Why didn’t gold rise in this easy money and inflation environment? This question seems to be on every gold investor’s mind, and rightfully so. There are many factors at play. And here we will try to decipher what really affects the gold price tag today.

Are gold investors looking at the wrong signals?

As gold prices generally rise in times of uncertainty or market stress, such as in 2020, investors tend to view gold as an asset to be held only during periods of high risk. Investors are turning to gold as they increasingly prefer risky assets with higher returns. But this risk-taking ability is vulnerable to new variants and outbreaks of Covid-19, the potential ineffectiveness of vaccines, inflation-related turbulence, stimulus-induced stock market bubbles, geopolitical and commercial tensions.

Also, investors seem to discount gold as both pro-cycle and anti-cycle. While safe-haven demand tends to greatly affect gold prices in the short run, growth positively affects consumer demand for gold (the lion’s share of annual gold demand) in the long run. So, if current k growth is indeed solid, strong consumer demand will support gold prices.

Relax: The US Federal Reserve is not in a hurry to increase interest rates!

Alongside the risk-prone sentiment, the Federal Reserve’s talk of monetary tightening caused the gold price to fall late. Yes, the Federal Reserve may tighten the policy soon, and this is fundamentally negative for the metal. But markets seem to exaggerate the speed, scope and impact of policy normalization.

As of now, the supportive policy stance still remains. The Federal Reserve’s benchmark rate has not changed near zero, and the central bank will continue to purchase monthly assets until at least the end of this year. But investors seem focused on the future, even though this is a good time. The proposed two-quarter-point rate hike will come a year and a half from now.

Also, the Fed’s reduction is only expected to begin in the first quarter of 2022. Both low interest rates and a high money supply are fundamentally positive for the yellow metal. There is encouraging data from the US, supported by the reopening of the US, subdued demand, and continued monetary and fiscal stimulus. But what if the recovery is unsustainable or prone to downside risks? Over the past year, we’ve seen some softness creep in as stimulus support paves the way for another round of measures to boost growth.

In addition, the United Statesdollars, the increase in Delta variant cases across the series continues to threaten k recovery. So, given that businesses and governments are emerging with much larger balance sheets on the other side of the cool pandemic, and a large or rapid rise in interest rates will increase their debt-paying costs, early tightening may derail the recovery. As growth and stability continue to be a priority for central banks around the world, this will provide good reason for the Fed’s slow pullback and keep monetary conditions favorable for gold prices longer.

Inflation risk for gold investors has not disappeared!

While an inflationary environment is good for gold, central bankers and markets seem to believe that current high inflation is temporary and does not do gold as an inflation hedge. If inflation is indeed temporary, the Fed won’t have to worry about price pressures, and interest rate increases will be smaller and more brisk to prevent the recovery from derailing or the series of debt-paying dollars rising. A less hawkish Fed might be good for gold.

And if high inflation persists longer than the Fed believes, the delay in tightening could lead to even higher inflation in the interim. Thus, it benefits gold by pushing real interest rates towards the red. Unlike previous k crises, the Covid crisis has also brought cryptocurrencies into the mainstream. Both asset classes have prospered amid unprecedented global monetary and fiscal easing in response to the pandemic.

Analisdollarser: Better to invest in gold than cryptocurrencies to beat inflation!

The redirection of some safe-haven streams to cryptocurrencies such as Bitcoin has therefore affected the gold prices. Cryptocurrency is a relatively new asset class with fewer participants and a questionable intrinsic value, making it susceptible to large price swings and speculation. Gold, on the other hand, is less volatile due to its well-established and liquid market driven not only by investment demand but also by consumer demand.

Therefore, investors with much lower volatility and risk appetite are better off investing in gold. Contradictory macro developments will keep gold prices on edge in the near term, while fundamentals remain constructive. According to Analisdollarser, investors should avoid overdoing it and gradually create and maintain a 10-15% risk in the strategic asset class.

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Michael Lewis


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