Gold price jumps almost $25, is this the begining of a breakout?

Thursday, June 20th 2024

The jump in gold prices that has been looming over the horizon for some time is finally here. Driven by the new employment data and the Federal Reserve’s tapering, Gold jumped by $25 last week. This is the market’s reaction to the Federal Reserve confirming its intentions of being patient for the near future. This is not an abnormality either as this rise has been pretty consistent over the last few days. December Comex gold futures were last at $1,866.90, up 1.70% on the day.

Gainesville Coins precious metals expert Everett Millman was quoted as saying that “the intra-day volatility for gold has been on the rise. The market is trying to digest how hawkish the Fed actually is. Powell’s comments left plenty of wiggle room to walk back that hawkishness. The central bank is more likely to stay patient to help the economy, which is positive for gold. The Fed might wait longer for rate hikes, or it might even stop its taper of QE”

This might seem counterintuitive in light of the 531,000 positions added to the US economy and the unemployment rate coming down to 4.6% in October. The statistic that really matters right now though is the participation rate that has stayed put at 61.6% as confirmed by the head of global strategy at TD Securities, Bart Malek. Furthermore, there are no indications that this will change anytime soon.

This keeps the volatility in the market in a somewhat stagnant state and the country is still a long way from achieving employment. Add to that the strong possibility of job growth not seeing a sharp positive increase in the next six months to a year and it is akin to a double whammy. This also means that the predicted tightening by the Federal Reserve won’t be happening anytime soon. All of this, however, means good news for the price of gold.

Despite their recent announcements and the speculation that has risen ever since the Federal Reserve confirmed that it will keep its policies quite relaxed, the unprecedented levels of resignations that have taken place over the last two years and the resulting high unemployment rate cannot go unchecked and needs to be reversed. This will take time and as a result, gold will continue its strong form for the foreseeable future making it a very strong investment option.

Strong forward surge for gold

Given the current trend, even the predicted rate hike for June seems to be a bit too optimistic now. This has given rise to one of those rare occasions when gold and dollar yields are moving in the same direction. Even though this may appear to be an anomaly, it is a safe-haven response as there is still a strong possibility that the Federal Reserve can take longer than anticipated to raise rates.

Even though it might seem like Gold price is at an all-time high, it is only the beginning. The $1,809 level is a pretty significant number and once the price holds steady above that, it will only keep climbing higher.

All these facts were further reinforced by ING chief International economist James Knightley who pointed out that “surging housing costs, labor costs, energy costs, and second-hand car prices are likely to mean headline inflation then pushes above 6% in December, with core inflation moving above 5%. The Federal Reserve assumes that inflation will fall sharply in 2Q and 3Q next year, but we are wary that labor market shortages, production bottlenecks, and supply chain issues could last well into next year”

Another factor that will further aid in the strong growth of gold is the perception in some sectors that the Federal Reserve’s current approach is not the right one and could backfire in the long run. The awaited level of employment may never come and that coupled with the rising inflation rates could send the market into a tailspin yet again. Historically, such phases in the economy have been very good for gold prices and that may very well be the case this time around as well. With no respite in sight for at least a year, gold prices will only scale new heights.

Wednesday’s data will be key

The inflation numbers that are scheduled to come out on Wednesday will play a crucial role in the direction the price of gold will take in the coming days. It is expected to come in at 5.8% and there are strong indications that it will cross the 6% threshold by December. That won’t be the end of it either. The Federal Reserve is supposedly expecting the rise in inflation to continue well into the third quarter of next year.

The world as a whole is still reeling from the effects of the pandemic and the ongoing shortage in the supply of semiconductors has further compounded challenges faced by the economy as a whole. In fact, the supply-chain as a whole is still reeling from the ill-effects of the pandemic and the global economic slowdown. While there have been some signs of recovery it is still not enough to stave off the massive dent that has been left in the economy. Gold has stood the test of time and has set the precedence for being a true haven in times such as these which is why it is still not too late to invest.

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