Gold has done nothing out of the ordinary, in fact, it has done exactly what one would expect. Driven by conflict and inflation hype, it began to surge out of the base in February, prompting knee-jerkers and momentum players to rush in, propelling gold to an overbought high in March.
Following that, gold prices corrected as the Federal Reserve announced aggressive rate hikes and quantitative tightening at its March meeting. The correction that results is typical and healthy.
Traders are reportedly lowering their aggressive expectations for Federal Reserve rate hikes this year after the May meeting’s 50 basis point rate hike. The rate-setting FOMC has increased rates by 50 basis points for the first time since May 2000. The Fed was combating the early Dotcom era’s excesses and the internet bubble at the time. The circumstances are substantially different this time around.
Traders had expected a 75-basis-point rate hike in June, but FED Chairman Jerome Powell said that was not on the table at the moment. The chairman also stated that the Fed may consider a 50-basis-point rise in June and July, as long as inflation risks are closely monitored.
Whether you like it or not, the Fed and its fellow central banks have inflated a cyclical cycle out of the 2020 pandemic disaster. However, I believe that this will change in 2022, either to a more virulent and economically damaging Stagflation or, more likely, a disinflationary or deflationary catastrophe of some type.
With US Bond Yields above 3% and Dollar Index above 104, Gold prices seem to have factored in all negative news. Gold prices are in the oversold zone again and are projected to rebound higher with little downside risks.