Gold prices stayed above $2,000 per ounce on Thursday as 40-year high inflation and the Ukraine-Russia conflict supported the precious metal.
April gold futures surged about 1 percent to climb above $2,000 an ounce on the COMEX division of the New York Mercantile Exchange.
The yellow metal has had a terrific start to 2022, rallying nearly 10 percent year-to-date.
Silver, the sister commodity to gold, also recorded notable gains toward the end of the trading week. May silver futures advanced about 2 percent to $26.34 per ounce.
Precious metals are gaining on price inflation recording a fresh 40-year high.
The U.S. annual inflation rate surged 7.9 percent in February, matching the market estimate. It was a broad-based consumer price index (CPI) report, with nearly everything up across the board, led by notable food and energy price growth.
“The shocking February inflation number of 7.9 percent will reverberate with older market professionals (like me) who remember a similar shock in 1973,” Peter Tanous, the founder and Chairman of Lynx Investment Advisory, told The Epoch Times.
By the end of 1973, an ounce of gold was trading at close to $115, up more than 66 percent from the previous year.
The situation in Eastern Europe is not showing signs of abating, prompting investors to seek shelter in conventional safe-haven assets. This could lead to higher gold prices, market strategists say.
Despite the remarkable bounce during the Wednesday trading session, the military Ukraine-Russia conflict is still wreaking havoc on equities and commodities. Market analysts warn that the disruption to global trade flows, from wheat to crude oil, could be felt for quite a while.
“The inflation numbers are certainly an underlying bullish element for gold. However, geopolitics is trumping economic data right now,” said Jim Wycoff, senior analyst at Kitco Metals, in a new analysis. “[Gold] bulls spent a lot of energy pushing prices to a record high earlier this week. Now, even bullish inflation data isn’t given much benefit because [prices] are just exhausted.”
This has several financial experts upgrading their gold market forecast.
Georgette Boele, a senior precious metals strategist at ABN AMRO, revised her estimate upward to $2,000 by the end of 2022 and throughout 2023.
Goldman Sachs analysts raised their projections for gold prices to $2,500 by the end of 2022.
“The last time that we saw all major demand drivers accelerate simultaneously was in 2010–2011 when gold rallied by almost 70 percent. Given the material upward revision in investment and demand assumptions, we now upgrade our 3 /6 / 12-month gold targets from $1950/2050/2150 an ounce to $2300/2500/2500 per ounce,” wrote Mikhail Sprogis, Sabine Schels, and Jeffrey Currie of Goldman Sachs in a recent note.
Economists at UBS say that the upside scenario for gold is a target of $1,850 to $1,950 per ounce by December 2022, citing a dovish Federal Reserve and overshooting inflation. But the downside scenario is $1,350 or $1,450, warning of a hawkish U.S. central bank and pushing up real interest rates.
When it comes to monetary policy, the Federal Open Market Committee (FOMC) will complete its two-day meeting Wednesday. It is widely expected that the Fed will agree to a 25-basis-point rate hike, with Wall Street firms anticipating at least five more rate hikes this year.
But market analysts say that it will be challenging for the Fed to navigate an economic landscape with rampant price inflation and war while sustaining economic growth.
“The Fed is in a tough position and will now need to look to raise rates but the impact along with the crisis in Ukraine could further the impact on the markets,” Marc Scudillo, the managing officer at EisnerAmper Wealth Management Corporate Benefits, told The Epoch Times.
The interest rate futures market believes that quantitative tightening could weigh on growth prospects, leaving investors to bet on a rate cut in the second half of 2023.
While Fed officials and economists concur that rate hikes are critical to tame inflation, a rising-rate environment could lead to exceptional fiscal threats for a country with a national debt exceeding $30 trillion, says Tanous.
“Rising interest rates will lead to a massive rise in the cost of servicing the U.S. debt. We could soon hit a level where half of what Americans pay in personal income taxes does nothing more than pay interest on our national debt,” Tanous stated.
Gold is typically sensitive to increasing rates because it lifts the opportunity cost of holding non-yielding bullion.
Meanwhile, market volatility and uncertainty have boosted the greenback over the last month.
The U.S. Dollar Index (DXY), which measures the buck against a basket of currencies, rose 0.52 percent to 98.48, from an opening of 98.06. The index is up about 0.7 percent this week, lifting its year-to-date gain to roughly 2.6 percent.
A stronger greenback is bearish for dollar-denominated commodities because it makes it more expensive for foreign investors to acquire.
In this market environment, there has been a simultaneous boost for both the U.S. dollar and the yellow metal, spotlighting the strong demand for traditional safe-haven assets. But the latest inflation reading is “going to act like a double-edged sword,” said Naeem Aslam, a market analyst at AvaTrade, in a note.
A stronger CPI will force investors to pour into gold and metal-related assets to protect their capital, while also forcing the Fed and other central banks to raise interests to curb inflation aggressively.
In other metal markets, April copper futures picked up 1.5 percent to trade around $4.64 per pound. April platinum futures shed about 1.2 percent to slide below $1,100 an ounce, while May palladium futures dropped 0.2 percent to fall under $2,950 per ounce.