(Kitco News) After another 75 basis point hike from the Federal Reserve, gold appears to be the dominant metal in the second half of the year, especially in light of lower industrial metal prices suggesting deflationary forces are back in the fore, according to Bloomberg Intelligence.
After the Federal Reserve’s decision in July, gold jumped around $30, with August Comex gold futures trading at $1,749.30, up 1.76% on the day. This comes after gold was stuck in a consolidation mode after its sudden drop to the $1,700 level an ounce, which was led by the strength of the US dollar.
“A 75 basis point rate hike at the July meeting could bolster the foundations for an extended bull market in gold and US Treasuries. Copper and gold are a bit cool at the end of July, but we are seeing larger headwinds for industrial metals,” Bloomberg Chief Commodity Strategist Mike McGlone said. In intelligence in this week’s report.
Bloomberg Intelligence sees gold as a potential advantage in the second half of the year after delivering flat results in the first half of 2022. Year-to-date gold is down 4.2%.
McGlone does not rule out a return of deflationary forces after aggressive Fed rate hikes.
“The Fed raising rates in 2022 by about 3 times the pace expected at the beginning of the year is a strong headwind for most assets, but it is the endgame that usually matters for gold lower. We see the copper retreat as a sign of the resumption of deflation,” he said.
In just 40 days, the Fed raised interest rates by 150 basis points. That might be enough for gold to find its bottom and start the next rally.
“Treasury long bonds and gold… may be the biggest beneficiaries when support tightens. Higher interest rates usually support short-term bond yields, but since the 75 basis point hike on June 15, long bond yields have fallen,” McGlone said. “Gold is starting to recover from around $1,200 an ounce by the time bond yields peaked four years ago, and we see a potential parallel rally at around $1,700. The metal has discounted completely for most of the moving averages in the midst of an extended upward trajectory.”
Helping this situation are Fed Chairman Jerome Powell’s comments that the US central bank may soon be ready to slow its tightening.
On Wednesday, Powell confirmed that US monetary policy is now neutral, which means that the Federal Reserve may soon begin to slow the pace of rate hikes.
“Now that we are on the fence, with the process going, at some point it will be appropriate to slow down. We haven’t made a decision when that point is, but it makes sense that it makes sense. He told reporters that charging these very large price increases from the start.
Powell also argued that the US economy is currently in a recession, despite the contraction of GDP for the second consecutive quarter.
“I don’t think the US is currently in a recession. There are many areas of the economy that are doing very well. I would like to point out the very strong labor market. [It is] It is true that growth is slowing down… [But generally]and GDP figures [are] It has been greatly revised. Referring to the upcoming first reading on Thursday of the second-quarter GDP report, Powell said you tend to take the first GDP reports with caution.
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