Will gold prices benefit from the classic bear market rally in stocks?

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(Kitco News) – There’s a new battle going on gold markets, as the precious metal continued to benefit from a weaker dollar and lower bond yields; however, a shift in risk sentiment created fresh headwinds for the precious metal as stocks ended a seven-week losing streak with a 6% gain.

This gold Markets managed to hold near the key psychological level of $1,850 this week as the dollar retreated from its highs earlier this month. The U.S. dollar index closed the week below 102, down 3 percent from a 20-year high.

Meanwhile, bond yields have fallen to 2.74%, down more than 13% from recent highs of more than 3%.

Nikki HillsA weaker dollar and lower bond yields could help, says head of metals strategy at MKS PAMP Group gold A solid break above $1,850 in the shortened trading week. However, she added that risk sentiment among equity investors would be a wild card.

“The missing piece is that the stock market is now entering a vicious short-covering rally with limited fear of a recession, a stock market crash, or a Fed rate hike,” she said.

Some market analysts believe that market risk sentiment has improved and inflation concerns have subsided. Investors breathed a sigh of relief on Friday after the Commerce Department said annual inflation rose 4.9% last month, down from a peak of 5.2% in March and 5.3% in February. Inflation fell in line with market expectations.

The data also reported healthy consumption; however, economists noted that U.S. consumers continue to tap into their COVID-19 savings, which may not be sustainable.

Some economists said the inflation data gave the Fed some room to raise rates less aggressively through the fall and into the end of the year. On Wednesday, the Fed signaled that it would raise interest rates by 50 basis points at its next two meetings, in line with market expectations.

For many analysts, however, the current risk sentiment is unsustainable as inflationary pressures are far from over, ultimately supporting gold.

“Energy prices continue to rise and will push up inflationary pressures,” said Sean Lusk, co-head of commercial hedging at Walsh Trading. “Inflation will fuel recession fears, making gold Attractive safe haven asset. “

Phillip Streible, chief market strategist at Blue Line Futures, said he sees the stock market rally as a classic bear market rally. He added that he also sees gold as an important safe-haven asset.

“Technically, gold looks good at $1,850 an ounce,” he said. “Not only has gold rebounded strongly from last week’s lows, its volatility measures have also declined. Gold performs well when volatility is low. Investors are drawn to this stability when uncertainty is everywhere. .”

Not all analysts are optimistic that gold can hold $1,850 an ounce.

While inflation may have peaked, inflation will remain highly sticky through 2022, said Bark Melek, head of commodity strategy at TD Securities.

“Inflation will drop sharply and the Fed will stop raising rates aggressively, which is probably more wishful thinking,” he said. “The Fed will keep raising rates, which will be bad for gold.”

Melek added that he still likes to gold market.

Some analysts have pointed out that stalled inflation during the Fed’s aggressive tightening cycle will push up real yields, making gold Less attractive as a non-yielding asset.

” look at goldespecially U.S. TIPS yields are currently in positive territory, which will dampen investment demand gold Given that it didn’t provide any benefit,” said Capital Economics’ commodity economist.

U.S. data provides little direction for markets

Although U.S. markets are closed on Monday for Memorial Day, it will be a busy week for economic data.

On Friday, economists and analysts will be eager to see the latest nonfarm payrolls report to see how the labor market is doing in the current economic environment.

While major data reports are due next week, market analysts said they had little impact on rate expectations.

Economists have said the central bank looks set to raise rates by 50 basis points at its next two monetary policy meetings, regardless of the data.

next week data
Tuesday: US Consumer Confidence Index
Wednesday: Bank of Canada monetary policy decision; ISM manufacturing PMI
Thursday: ADP Nonfarm Employment Change
Friday: United States Nonfarm Payrolls; ISM Services Purchasing Managers’ Index

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