Faced with the worst monthly performance in 4.5 years in June, gold is gradually recovering, even trying to keep psychologically important levels of $ 1,800 an ounce amid deteriorating global risk appetite and declining US government bond yields. Maybe the situation is not as terrible as it looks, and the precious metal will be able to recover. Or will there be a long-term declining trend in XAU / USD?
The answer to this question is not easy. Despite a massive sell-off in early summer, investors continue to hold their investments in gold ETFs and believes that after a series of unsatisfactory data in the US, the Fed will decide to keep its ultra-soft monetary policy longer and market euphoria over inflation accelerating and rapid GDP growth disappear. Government bond yields will continue to decline, allowing the precious metal to return above $ 1,900 an ounce. The Scottish Investment Fund predicts that inflation will soon spiral out of control, which will have a positive effect on the prices of the asset being analyzed. The company suggests recalling the history of the 1970s, when the regulator felt like a fish without water against a background of unlimited CPI growth.
On the other side of the barricade is Morgan Stanley, who claims that the strengthening of the US dollar and higher real US debt rates will continue to cause gold problems. The result will be a drop to $ 1,700 an ounce over the next 6 months. According to JP Morgan, government bond yields appear very low in terms of a model based on economic growth and monetary policy. The company attributes this to over-inflated speculative net short positions, which close from time to time amid unsatisfactory US statistics, such as the release of data on June business activity in the US non-manufacturing sector by the Institute for Supply Management.
In my opinion, gold feels good in extreme points, in times of too high or too low inflation. Today, the US and other world economies are somewhere in the middle, which puts strong pressure on the precious metal.
In addition, you must understand that gold does not respond to inflation itself, but to what the Fed thinks of inflation. In this respect, the investors’ calculation that the further fate of the XAU / USD will be decided by the minutes of the June FOMC meeting seems logical. Seven members of the Federal Open Market Committee believe that rates will be raised in 2022, six expect this to happen in 2023, and the rest predict a later tightening of monetary policy.
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