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On August 26, European Central Bank Executive Board member Schnabel stated that the protracted Middle East conflict, coupled with unexpectedly strong Eurozone economic performance, poses upside risks to inflation, necessitating further interest rate hikes. Consumer price increases could exceed 2% for an "extended period," and policymakers will be behind the curve if action is delayed until these effects are transmitted to wages. She stated, "At current interest rates, inflation is unlikely to return to the target level in the medium term, thus requiring further policy tightening. Especially given the current resilient aggregate demand, preventing a second round of effects early is crucial, as acting too late may require more aggressive tightening measures." She pointed out that fiscal policy, increased defense spending, and the global AI boom are key drivers of strong economic growth. Schnabel warned that energy price pressures, excluding oil, are becoming more persistent. Given low European gas inventory levels, the gas market is particularly worrying, "posing a substantial upside risk to inflation. The longer the conflict lasts, the greater the risk and intensity of indirect and second-round effects."ANZ Bank now expects the Reserve Bank of Australia to raise interest rates by 25 basis points in November.August 26th - As markets closely watch for clues about the timing of the Bank of Japans next interest rate hike, BOJ watchers will be closely monitoring Deputy Governor Ryozo Himinos speech on Thursday. SMBC Nikko Securities strategist Ataru Okumura stated, "While there are limitations to how much a single speech by a BOJ deputy governor can guide market expectations, the focus will be on how firm his wording is on controlling inflation." Okumura added that although the bond market firmly expects the BOJ to raise rates sooner rather than later, investors doubt the banks ability to push rates above the restrictive level of 2%, making the future path of interest rates a key focus for the market.August 26th - According to the Financial Times, US Treasury Secretary Bessetts intervention in the bond market runs counter to the Federal Reserves efforts to curb inflation. Bessetts unexpected intervention in the US Treasury market caused yields to initially fall before rising, triggering a market reaction that puts greater pressure on Warshs speech in Jackson Hole on Friday. Warsh has consistently emphasized that investors should rely more on economic data and market prices rather than waiting for "forward guidance" from central bank officials to tell the market about future interest rate trends. There are now concerns that if Bessetts efforts to control yields remain ineffective, the Federal Reserve may also face pressure to intervene in the market. Warsh and Bessett are both protégés of billionaire Stanley Druckenmiller, and the two reportedly have a close relationship and meet frequently. However, the current impression is that their respective Treasury departments and the Federal Reserve are "moving in opposite directions."ECB Executive Board member Schnabel: At the current policy rate, inflation is unlikely to return to the target level in the medium term, and further tightening of policy will be necessary.

Gold Gains Substantial Ground This Week As Investors Focus on the Economy

Daniel Rogers

May 23, 2022 09:51

Weekly Gold Prices and Technical Evaluation

Gold prices ended the day and week with gains that were substantial. Gold futures based most active June contract is now up $3.90 or 0.21 percent at $1845.10 as of 5:50 PM ET. Considering that gold futures traded as low as $1785 this week and as high as $1848.60 this week, gold had a successful week.

 

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Before this week's trading action resulted in definable technical chart damage with gold breaching below its 200-day moving average on May 12, gold prices had been under pressure for four straight weeks. This week's low was reached on Monday, May 16 when gold prices touched $1785, moved as high as $1825 before ending above Monday's beginning price and Friday's closing price of $1813.60. On Tuesday, gold reached a higher high and a higher low than it did on Monday, although closing slightly below its beginning price. On Wednesday, gold reached a lower low and a lower high compared to Tuesday's price action, but on Thursday, this trend reversed.

 

Gold's beginning price on Thursday was $1816 and its closing price was $1841, which is above its 200-day moving average of $1837. Although gold had a little increase today, it began and finished above its 200-day moving average, which is notable from a technical standpoint. If gold can sustain a price over $1837 on a technical basis, we may conclude that gold prices have returned to a robust long-term bullish disposition.

Fundamentals

This week's recovery in gold was due to a shift in market sentiment away from the Federal Reserve's recent and future activities in regards to their tightening monetary policy, in which they raised the Fed funds rate by 0.5 percentage points at this month's FOMC meeting, following the quarter-point rate hike they implemented in March.

 

Chairman Powell's recent assertions that he is willing to hiking rates well above the Federal Reserve's interest rate objective for normalization, which has been set at about 2 percent, imply that they will become more aggressive. This was regarded as a more aggressive monetary policy in an effort to stem the rising tide of inflation.

 

The Federal Reserve's statements prior to this week indicated that they believe inflationary pressures had peaked, and the most recent CPI inflation index data from last month validates this view. The CPI index for April came in at 8.3 percent, below the rate of 8.5 percent recorded in March.

 

The tightening of the Federal Reserve's monetary policy has caused in a massive selloff in U.S. equities, which continues into this week, sending all three major indexes into a defined spiral with seven weeks of price drops.

 

However, gold has declined for four consecutive trading weeks in expectation of much higher interest rates to combat inflation. This week, however, we have witnessed a clear and defined reversal of market sentiment, as investors are now clearly focused on the reality that inflation has not peaked and is most likely continuing to rise, and the prolonged risk-off market sentiment has shifted market sentiment from the higher yields of U.S. Treasuries to the safe-haven asset, gold.

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