By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all
Even if the gold market is now taking a little breath, there is still a lot of fuel remaining in the tank if recent consolidation is any guide. The price of gold is still ranging between $2150 and $2200 as US Treasury bond rates continue to rise. While gold prices have reached all-time highs due to unprecedented speculative bullish bets, holdings in ETFs backed by gold are hovering around multi-year lows and this will keep supporting gold’s long-term upward trend.
The wider attractiveness of gold is still up in the air as investors re-evaluate their expectations for a rate cut by the Federal Reserve during the June policy meeting. This is because the US PPI data from February showed that producers are raising prices for goods and services faster than expected. Hot US PPI data has suggested that Fed officials may not need to lower interest rates immediately, which has reduced market expectations for rate reduction in June. As to the CME FedWatch tool, the probability of a rate reduction has decreased from 74% to 59% in only one week.
The US CPI report this week also revealed that inflation is still persistent. In his appearance before Congress, Fed Chair Jerome Powell stated that the central bank is getting closer to feeling confident that inflation would return to the targeted rate of 2%. However, this statement has been called into question due to persistent price pressures. Investor attention is now focused on the Fed’s upcoming interest rate announcement on Wednesday. It is generally expected that the Federal Reserve would maintain interest rates in the 5.25%–5.50% range. Along with economic projections, the central bank will also disclose the dot plot, which shows the predictions of Fed members for interest rates over time.
Because of the precious metal’s strong support from central bank demand, geopolitical unpredictability, and sluggish global economy, U.S. monetary policy has less of an impact on gold and silver prices. There is still a lot of value in the gold market, even though it appears overpriced. Even if gold seems a bit expensive, silver is still cheap to buy. Silver which has underperformed Gold in the last few sessions is finally gaining steam. Silver Prices have crossed the resistance of $25 (~Rs 75,000) and heading higher towards $26 (~ Rs 77000). If Silver sustains above $26 and Gold above $2200, we can see a new bull run, which could extend towards $30 (~ Rs 90,000) and $2350 (~ Rs 70,000).
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