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Gold Market Analysis
August 11, 2022

CPM Group Precious Metals Advisory


“Gold Price Outlook
Gold prices had a rough July, with prices slipping to an intraday low of $1,678.40 on 21 July. This was the lowest level that gold prices had reached since 9 August 2021, when prices had touched an intraday low of $1,676.40.

U.S. inflation figures for June, both headline and core, came in stronger than markets expected. This resulted in a sharp decline in gold prices. While in theory gold prices should benefit from higher inflation numbers, the reality is that these higher inflation figures suggested to the market that the Fed is likely to become even more aggressive in raising interest rates to quell strong inflation. This resulted in a stronger U.S. dollar against other major currencies as well as placing a lid on future inflation expectations. For a brief period following the June U.S. inflation report the markets began to price in a 100-basis point increase for the July Federal Open Market Committee meeting. The Fed ultimately announced a 75 basis points increase at its late July meeting and did not provide specific guidance with regard to future increases, saying only that the increases would be data dependent.

Various economic reports that came in after the U.S. June inflation report suggested a loss in growth momentum, which lowered the markets’ expectations of the pace of future inflation and interest rate increases. The market also began to price in interest rate cuts in the summer of
2023. These expectations regarding interest rates coupled with an initial reading of the second quarter U.S. gross domestic product showing a -0.9% contraction in economic activity, and most recently the visit by Nancy Pelosi to Taiwan, were all factors that drove bond yields lower and weighed on the U.S. dollar, driving gold prices above $1,800 on an intraday basis on 2 August.

Financial markets have a tendency to overreact to news, and the news and various economic indicators are expected to give confusing signals to the market regarding the future course of economic growth, inflation, and the Fed’s course of action. This is expected to keep gold and other precious metals volatile for some time.

While economic conditions have cooled from levels last year and even earlier this year, based on the information available at this time it does not seem that the U.S. or global economies are in a full-blown recession. Inflation is expected to be problematic in the near to medium term, requiring monetary authorities to continue tightening policy.

Gold prices could move sideways to lower in the near term. Persistent signs of weakness in the labor market could be the trigger for gold prices to rise strongly. This is a key metric that the Fed is watching for cues on when to slow or pause monetary tightening. At this time the job
market is still strong. Initial jobless claims have been ticking higher and non-farm payrolls have been slowing, but this is to be expected at the current stage of the economic cycle. In the absence of any meaningful deterioration in the labor market, the Fed is expected to continue to focus on reducing inflation, which should act as a headwind to gold prices.

Market participants are attempting to push gold prices to settle above $1,800 on a firm basis. If this is accomplished a move higher toward $1,820 or even $1,850 is possible. The trigger for such a move higher could be any meaningful deterioration in economic conditions or heightened concerns over political missteps by global leaders. In the absence of these risks, seasonal weakness in prices and tighter monetary conditions could keep gold around and below $1,800 for the rest of August or even soften gold prices from present levels toward $1,740 or even $1,680 once more."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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