By Dr. Renisha Chainani, Head Research, Augmont – Gold for All
A turning point is a point at which the price of an asset reverses direction. Turning points tend to occur at a fixed rhythm in time. Gold prices have turned up and have gained $155 from a low of $1616 to $1771. Prices have given a breakout from their downtrend and sustained above it for a week. This acceleration and sharply higher movement come on talks that the FED may ease its hawkish policy.
International Gold SPOT Weekly Chart
Yellow metal got this boost from US CPI data which showed that inflation has been cooling for the last four months after topping at 9.1% in July 2022.
The October CPI report for the US came in at 7.7 percent higher YoY, below estimates for a 7.9 percent increase, and contrasts with the 8.2 percent increase observed in the September report. US CPI is a very important indicator for FED in deciding the monetary policy for the US. The softer-than-expected CPI figure strengthens the case for a slower pace of hikes at the December FED meeting. This might lead to a return of the dollar’s downward trend, opening the door for gold to launch a big recovery. Market participants now expect the FED to raise interest rates by 50 basis points at its December meeting.
Expectations for Inflation appear to have peaked, but they remain historically high. The inflation rate is projected to fall as money supply growth slows, possibly falling below pre-pandemic levels. And because monetary policy has a significant lag, the consequences of the FED’s aggressive moves have yet to be fully realised by the economy. As a result, central bankers could easily overreact. After all, they are so inept that overreacting to inflation after such a lengthy period of underreacting is not surprising. The FED’s monetary policy remains too easy, rather than too restrictive. This is a setup for stagflation, not successful deflation. So far, the FED has maintained a hard, hawkish face, but as the economic situation deteriorates.
Actually, stagflation is a genuine possibility, as the next recession will be accompanied by more inflation than the previous ones. This is because stagflation causes both economic standstill and high inflation. Most assets become weak when assaulted by two attackers at the same moment, and gold tends to outperform them. This is not surprising given that during stagflation, there is a great deal of economic uncertainty, trust in the central bank is low, and real interest rates are falling, with some plunging into negative territory. In other words, stagflation boosts gold’s underlying fundamentals.
Indian Gold prices had been trading in a downward channel for the last eight months after touching the high of Rs 56000/10 gm in March. Domestic gold prices seem to have made short-term bottom around Rs 50000/10 gm and as prices have given weekly close above important downtrend line channel resistance of Rs 53000/10 gm, it seems Rs 56000/10 gm and Rs 58000/10 gm is on the cards in few months. Moreover, strong marriage season demand from India and strong Investment demand from central banks will keep supported. World Gold ETF investors, who have been on side-lines or sellers are likely to jump into this market to realise the price rally.
Indian Gold SPOT Weekly Chart
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