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Markets dive and gold proves its mettle

17 June 2022

Friday 17 June 2022
In this week's market report:
  • Back to 1850
  • Fed shocks market
  • Recession fears ignite
  • Markets in ‘risk off’ mode
  • Inflation is high and getting higher
Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

Source: Trading View
(Click to enlarge)
Gold rallies on Fed rate hike: After a bumpy week, gold is back to the important psychological level of US$1,850. Spot gold traded down ahead of the Fed’s announcement, testing US$1,813, only to rise US$28 per ounce to US$1,841 shortly after.

Back to 1850: In the past 24 hours gold has traded up to US$1,851, up 0.52% overall for the week. Spot gold has had a wider trade range this week, with a low of US$1,805 and a high of US$1,879.

Fed shocks market: The Federal Reserve Bank shocked the market this week raising rates 75 basis points instead of the expected 50 basis points. This is the largest increase from the Fed since 1994.

Up, up, up: The Swiss National Bank raised rates for the first time in 15 years on Thursday. So did the Bank of England, lifting rates 25 basis points to 1.25%

Recession fears ignite: Hopes of a soft landing for the US economy fade after the Fed’s ‘supersized’ rate hike as the worst inflation in forty years grips the US, writes Reuters. Both the Dow Jones and S&P 500 tanked over the week, falling 6.64% and 7.77% respectively. Wells Fargo now believe there is a 50% of a US recession.
  • The Fed warn a faster pace of rate hikes is ahead.
  • A similar sized increase at the July meeting is now possible.
  • US growth for the year is tipped to be a below trend at 1.7%.
  • In contrast, ING have said that ‘harder and faster’ rate increases come ‘at an economic cost’ and are forecasting rate cuts by mid 2023.
Markets are in ‘risk off’ mode but US dollar caps spot gold’s rally: Gold finds support and did move higher after the Fed announcement. Still, higher rates give the US dollar strength, with the DXY reaching a 20 year high of 105.78 on Wednesday.
  • The DXY has slipped lower since.
  • Markets are clearly in risk off mode, but a strengthening US dollar will smoother enthusiasm for spot gold.
Silver lifts, industrial metals fall: Silver rallied alongside gold this week. Platinum and palladium struggle to gain momentum as economic growth falters: Bulls, key resistance points lie ahead: Spot gold is proving to be resilient to rate rises as the looming US recession in the background provides support. Resistance sits at US$1,870-2 and again around US$1,889-98.   

The bottom keeps moving higher, Bears: A strong US dollar is keeping pressure on gold, though technical support continues to move higher. Another fall to US$1,805 is possible, but likely no lower than US$1,790-95.

Aussie dollar falls and Australian gold price is steady: The Australian dollar is just managing to hold US 70 cents, with the Australian dollar gold price trading around AU$2,630.

Inflation is high and getting higher

Pew Research wrote this week that inflation is creeping higher across the world:
‘In 37 of these 44 nations, the average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its deadly spread. In 16 countries, first-quarter inflation was more than four times the level of two years prior.
‘Among the countries studied, Turkey had by far the highest inflation rate in the first quarter of 2022: an eye-opening 54.8%. Turkey has experienced high inflation for years, but it shot up in late 2021 as the government pursued unorthodox economic policies, such as cutting interest rates rather than raising them.’

Inflation across 44 countries

Source: Pew Research
Inflation continues to be the biggest concern for policy makers and is threatening returns for investors. In the past, inflationary periods have been short lived for many Western economies. However, there is a risk we will experience a deeper, and longer inflation period this time.
Gold is a proven long term hedge against inflation and is one investment which can assist investors to preserve wealth during economic turbulence.

Inside our office this week…

After an increase interest rates locally and persistent inflation, many investors are looking to add to their physical gold position with either our 1oz ABC Bullion Gold Cast Bar or our 50g ABC Bullion Gold Cast Bar.
Warm regards,
The ABC Bullion Team