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On April 30th, Madison Faller, Global Investment Strategist at JPMorgan Private Bank, stated that the Bank of Englands decision to hold rates steady today was not surprising, but investors should not confuse consensus with confidence. The market may have misinterpreted the balance of risks. Risk is two-way. However, the speed and volatility of the repricing from rate cuts to rate hikes suggest that investors are overestimating the inflationary risks from the energy shock while underestimating the downside risks to growth. We believe that recent movements in UK government bonds (especially in the short to mid-yield curve) and the pound have been somewhat overdone. We believe investors should position themselves now, rather than chasing a hawkish narrative.On April 30th, David Rees, Global Head of Economics at Schroders, stated that the Bank of Englands decision to keep interest rates unchanged reflects its hawkish stance. With overall inflation at 3.3%, wage growth has only gradually slowed, and services inflation remains sticky. The risk lies in the possibility that this shock could become more persistent. A second wave of risk exists later this year if energy shortages translate into food price pressures. Rising fuel and shipping costs, coupled with renewed pressure on inputs such as fertilizers, could lagged behind in pushing up grocery inflation. The risk of persistently high inflation, coupled with speculation about political upheaval following local elections, has pushed UK gilt yields to near 20-year highs. Even so, the threshold for raising interest rates remains high. Given some slack in the labor market and the potential for weaker growth if supply disruptions persist, we doubt the Bank of England will tighten policy unless economic activity remains strong enough to absorb the impact of a rate hike.On April 30th, the Bank of England voted 8-1 to keep the benchmark interest rate at 3.75%. Chief Economist Peale was the only member to vote against it, but other members hinted they might join him at future meetings. Due to the high unpredictability of the Iranian conflict, the Bank of England abandoned its core inflation forecast, instead setting three scenarios based on different paths of energy prices and the effects of a second round of inflation. All three scenarios indicated a need for an interest rate hike: the most pessimistic scenario predicted oil prices would remain around $130 per barrel—a level already reached before Thursdays rate decision. Under this scenario, models used to illustrate the potential impact of monetary policy pointed to a larger rate hike, between 66 and 151 basis points.Bank of England Governor Bailey will hold a monetary policy press conference in ten minutes.Daxin Securities: Raises its target price for Amazon (AMZN.O) from $285 to $310.

June Gold Buyers May Face Difficulties at $1987.60

Larissa Barlow

Apr 14, 2022 10:14

The market's strength is being fueled by demand for a hedge against rising inflation during the Russia-Ukraine conflict, lessening pressure from expectations of an aggressive US interest rate hike, and the US Dollar's intraday reversal top.

 

June Comex gold futures are currently trading at $1982.70, up $6.60 or 0.33 percent from their previous close. The SPDR Gold Shares ETF (GLD) is currently trading at $184.66, up $0.89 or 0.48 percent from its previous close.

 

Gold is regarded as an inflation hedge and a hedge against geopolitical concerns. However, higher interest rates in the United States would increase the opportunity cost of storing non-yielding bullion and strengthen the dollar against which it is valued.

 

However, the price action shows that gold buyers are seeking insurance against inflation and are not very concerned about opportunity costs at the moment. Despite all of the Fed's hawkish rhetoric and anticipation for aggressive rate hikes, we have yet to witness a shift in the direction of inflation.

 

Gold is likely to remain underpinned for the foreseeable future as long as the inflation arrow continues to point upward and the Ukraine war continues.

 

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Technical Analysis of the Daily Swing Chart

According to the daily swing chart, the primary trend is upward. A move over the intraday high of $1985.50 reaffirms the uptrend. A break of $1916.20 will revert the major trend to the downside.

 

On the upside, the retracement zone between $1987.60 and $2009.90 is the nearest objective.

 

On the downside, the long-term Fibonacci level at $1958.70 serves as the initial support, followed by the short-term 50% level at $1932.90.

Technical Forecast for the Daily Swing Chart

The June Comex gold futures market's path through Wednesday's close is likely to be dictated by trader reaction to the 50% level at $1987.60.

Scenario of Bullishness

A sustained move above $1987.60 will signal that buyers are present. This could provide the necessary momentum for a test of the Fibonacci level at $2009.90. This is a trigger point for an upside acceleration.

Scenario of the Bear

A persistent decline below $1987.60 indicates the existence of sellers. They intend to attempt the formation of a secondary lower top. This, if successful, might result in a break into $1958.70.

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