Gold Price Outlook: Fed Hiking Cycle Impact on Gold

[MongiIG]

Gold Price Analysis and News

• Fed Rate Hikes On The Way In 2022
• Gold Struggles In the Run Up Into the First Fed Rate Hike

In a year where inflation has hit over three-decade highs, gold has struggled throughout much of the year, with the yellow metal down over 4% YTD. This comes amid sticky and not so transitory inflation pressures forcing the Federal Reserve to remove emergency stimulus much quicker than markets had expected. Therefore, dampening the appeal for gold, particularly with real yields finding a bottom.

At the December meeting, the Federal Reserve announced that it would double the pace of its QE taper (Figure 1.), which in turn brought forward expectations of a Fed rate hike. Those expectations were further bolstered by the central bank shifting its dot plots to project three rate rises from the prior of one, which was also more hawkish than the market consensus call of two 2022 rate rises.

Figure 1. New Fed Taper Schedule Signals Fed Rate Hike Sooner Rather Than Later

Source: Refinitiv

Taking a look at Fed Fund Futures, the first-rate hike from the Bank is near fully priced in for May. Therefore, if we use current market pricing for liftoff as our reference date i.e 6 months times. The table below highlights the 6-month return in gold heading into the first Fed rate hike and the 6-month return after liftoff.

Fed Futures See First Rate Hike in May

Source: Refinitiv

As seen below, gold struggles in the run-up into the first hike with an average fall of 2% before picking up in the following 6-month period.

Gold Performance 6 Months Before and After the First Fed Rate Hike

Source: Refinitiv, DailyFX

FURTHER READING

Bank of England Hiking Cycle: Impact on the Pound and FTSE 100

By Justin McQueen, Strategist, 24th December 2021. DailyFX

[SillyMilly]

On 24/12/2021 at 12:26, MongiIG said:

Gold Price Analysis and News

In a year where inflation has hit over three-decade highs, gold has struggled throughout much of the year, with the yellow metal down over 4% YTD. This comes amid sticky and not so transitory inflation pressures forcing the Federal Reserve to remove emergency stimulus much quicker than markets had expected. Therefore, dampening the appeal for gold, particularly with real yields finding a bottom.

 

How do you think gold prices will do over the next quarter and then next year?

Do you think they will go up or down in another lockdown?

Do you think gold would beet hyper inflation?

Do you think now is the time to buy or should I weight a while?

Thanks

[MongiIG]

On 25/12/2021 at 19:27, SillyMilly said:

How do you think gold prices will do over the next quarter and then next year?

Do you think they will go up or down in another lockdown?

Do you think gold would beet hyper inflation?

Do you think now is the time to buy or should I weight a while?

Thanks

Hi @SillyMilly

Have a look at Gold Q1 2022 Fundamental and Technical Forecasts below:

Hope this helps!

All the best - MongiIG

[SillyMilly]

On 27/12/2021 at 09:55, MongiIG said:

Hi @SillyMilly

Have a look at Gold Q1 2022 Fundamental and Technical Forecasts below:

Hope this helps!

All the best - MongiIG

Thanks for the link!

I read on it that it states

but even if Omicron rages, the political appetite for more stimulus in the face of persistently high inflation readings does not appear to exist.

So its the inflation that make gold rise and it would appear to state that another lockdown will not cause more inflation

 

Also I read the bit about the pull back

I have read ells where that when the markets crash gold prices will drop at first in a pullback and then go up

 

I have been watch "Southbank research" And they seam to think that the price of gold now has settled

Southbank also claim then in the next 12 moths we will see the markets crash but there will be no prior notice to it before it happens

[MongiIG]

17 hours ago, SillyMilly said:

So its the inflation that make gold rise and it would appear to state that another lockdown will not cause more inflation

Euro zone inflation hits 5%, marking another record high

Economic IndicatorsJan 07, 2022 

 

 

 

© Reuters. FILE PHOTO: People walk through the Mall of Berlin shopping centre during its opening night in Berlin, September 24, 2014. REUTERS/Thomas Peter

FRANKFURT (Reuters) - Euro zone inflation rose unexpectedly last month, likely making for more uncomfortable reading at the European Central Bank, which has consistently underestimated price pressures and come under fire for this from some of its own policymakers.

Inflation in the 19 countries sharing the euro rose to 5% from 4.9% in November, a record high for the currency bloc and well ahead of analysts' expectation for 4.7%.

Energy prices, up 26% compared to a year earlier, remained the main driver but the increases for food, services and imported goods were also all well above the ECB's overall 2% inflation target, data from Eurostat showed on Friday.

With the economy roaring back to life from its initial pandemic shock last year, price growth took off, catching the ECB - which predicted just a benign inflation hump a few months ago - off guard.

Adding to the upward pressure, supply-chain bottlenecks curtailed the availability of consumer products, while households, forced into saving their cash for a year, started spending on everything from new cars to restaurant meals.

Most of these inflation drivers are temporary, so price pressures should ease eventually.

But views diverge on how fast inflation will come down and where it is likely to settle once the economy adjusts to a new normal.

The ECB sees inflation back under 2% by the end of this year, but a long list of influential policymakers question this narrative, warning that risks are skewed towards higher figures and that above-target readings could persist into next year.

Part of the concern is that underlying prices - or inflation excluding volatile food and fuel prices - are also above target, suggesting that sectors prone to weak price pressures over the past decade are now adjusting.

Indeed, inflation excluding food and fuel prices, closely watched by the ECB, rose to 2.7% in December from 2.6%, while a narrower measure that also excludes alcohol and tobacco products held steady at 2.6%. Both figures were just above expectations.

Still, no policy action from the ECB is likely anytime soon.

 

The bank curbed but extended stimulus only a few weeks ago, so no big review of its stance is likely before March.

The ECB also argues that wage growth, a precondition of durable prices pressures, is anaemic, while the surge in coronavirus infections will likely curtain economic activity and weigh on inflation.

[MongiIG]

Just now, MongiIG said:

FRANKFURT (Reuters) - Euro zone inflation rose unexpectedly last month, likely making for more uncomfortable reading at the European Central Bank, which has consistently underestimated price pressures and come under fire for this from some of its own policymakers.

ECB's Lane says inflation to fall this year

EconomyJan 07, 2022.

 

 

 

© Reuters. FILE PHOTO: European Central Bank Chief Economist Philip Lane speaks during a Reuters Newsmaker event in New York, U.S., September 27, 2019. REUTERS/Gary He

DUBLIN (Reuters) - Record euro zone inflation of 5% sounds "so strange" after a long period of little price growth but the rate will come down this year, European Central Bank chief economist Philip Lane said on Friday.

Inflation across the bloc rose unexpectedly in December from 4.9% a month earlier, data on Friday showed, marking a fresh high for the 19-country currency bloc and hitting a level more than twice the ECB's 2% target.

However, Lane reiterated that the drivers are temporary and that the period from 2020 to 2022 were part of a "pandemic cycle in inflation" and should not be compared to historical norms.

"This year inflation is going to be come down, it's going to be above where we want it to be in the long term," Lane told Irish broadcaster RTE, reiterating the bank's projections that inflation will be above its target for 2022 as a whole before falling "a little bit below" target in 2023 and 2024.

"Yes, when we hear numbers like 5%, that sounds so strange after a long period of low inflation but we do think inflation pressures will ease over the course of this year."

While the ECB projections see inflation back at 1.9% by the fourth quarter, a long list of influential policymakers question this narrative, warning risks are skewed towards higher figures and that above-target readings could persist into next year.

Some policymakers sought a greater acknowledgement of inflation risks at an ECB meeting last month but were rebuffed by Lane in an unusually robust debate, sources close to the debate told Reuters.

 

Lane told RTE that while high energy prices are a major concern, supply pressures should ease in the oil and gas markets this year.

He added that the case for altering the ECB's interest rate policy "is not there" given it thinks high inflation is not going to be durable.

[MongiIG]

17 hours ago, SillyMilly said:

but even if Omicron rages, the political appetite for more stimulus in the face of persistently high inflation readings does not appear to exist.

Above link on Omicron and inflation.

 

All the best - MongiIG

[SillyMilly]

Surly one can not just believe what these so-called experts are telling up at face value is that “we all will go back to normal soon”

There is no mention in those articals of

1. A winter lcokdown

2. A pending financial crash

3. And a great reset