Home > Boards > Other Markets > ETFs > SPDR Gold Shares (GLD)

Will Gold Rally Continue Into Upcoming Months?

Public Reply | Private Reply | Keep | Last ReadPost New MsgNext 10 | Previous | Next
DiscoverGold Member Profile
Member Level 
Followed By 573
Posts 78,198
Boards Moderated 44
Alias Born 03/10/04
160x600 placeholder
Telstra Acquires Digicel Pacific in Partnership With Australian Government -- 2nd Update
SYDNEY--Telstra Corp. Ltd. agreed to acquire mobile networks in six Pacific nations in a US$1.6 billion deal largely funded by the Australian government, which foreign policy experts have said wanted to block China from buying the assets.
Telstra Acquires Digicel Pacific in Partnership With Australian Government -- Update
Telstra Acquires Digicel Pacific in Partnership With Australian Government
Top Company News of the Day
Canada Antitrust Watchdog Probes Google Conduct in Online Ad Market -- Update
Canada Antitrust Watchdog Probes Google Conduct in Online Ad Market
USDA Reports Drop in Cattle Placed on Market
Wheat Rises on Tighter Supply Picture -- Daily Grain Highlights
Warren Buffett Tenders Cattolica Stake as Generali Takeover Edges Closer, Source Says
Front Month Nymex Natural Gas Fell 2.40% This Week to Settle at $5.2800 -- Data Talk
Front Month Nymex RBOB Gasoline Fell 0.17% This Week to Settle at $2.4821 -- Data Talk
Trustmark National Bank To Pay $5 Million To Settle Lending Discrimination Claims
3Q GDP Seen +3.0% -- Data Week Ahead
U.S. Oil-Rig Count Falls by Two in Latest Week, Baker Hughes Says
American Express on Track for Record High Close -- Data Talk
UK Takeover Panel Suspends Timetable on Ganfeng's Offer for Bacanora Lithium
S&P Global, IHS Markit Get Conditional Approval From European Commission for Deal
FTSE 100 Closed Up as It Shrugs off the Week's Negative Sentiment
STOXX Europe 50 Index Ends the Week 0.25% Higher at 3637.18 -- Data Talk
EURO STOXX 50 Index Ends the Week 0.14% Higher at 4188.81 -- Data Talk
DiscoverGold Member Level  Thursday, 06/10/21 11:03:41 PM
Re: None
Post # of 5148 
Will Gold Rally Continue Into Upcoming Months?

By: Arkadiusz Sieron | June 10, 2021

May was certainly a positive month for the yellow metal. Gold could keep its momentum later this year, but a lot depends on the Fed and inflation.

We left May in the rearview mirror, and as the chart below shows, it was the second positive month in a row for the yellow metal. Goldrose 7% last month – and 12.3% since the local bottom on March 31, 2021. The jump was driven mainly by inflation fears, a weak greenback and a decrease in real interest rates.


Gold Prices In 2021.

Hence, I was right: the second quarter has been so far much better for the shiny metal than the first one, in which it declined by 11%. Gold even jumped temporarily above $1,900 at the turn of May and June. Since then, it has been fluctuating around this level. All this means that the yellow metal fully recovered its Q1 losses, finishing last month virtually flat year-to-date.

Now, the key question is: What’s next for gold? Outlooks are, as always, divided. Some analysts point out that gold’s struggle to move decisively north above $1,900 amid all the increase in the money supply, public debt and inflation is disturbing and has bearish implications for the future. For instance, the French bank Société Générale still believes that we will see $2,000 per ounce by the end of the year, but its conviction towards this forecast has weakened. I have to admit – the lack of a stronger rally in gold is something I also worry about.

But on the other hand, some believe that gold is still in a long-term bull trend. For instance, the World Gold Council, in its latest Gold Market Commentary, points out that sentiment towards gold became more bullish in May, as net positioning on COMEX futures rose to its highest level since February. Moreover, not only gold ETFs recorded their first monthly inflows since January 2021, but also the highest ones since September 2020.

Furthermore, the WGC’s 2021 Central Bank Gold Reserves Survey reveals a slightly stronger conviction towards gold, as there is a growing recognition among central banks of gold’s performance during periods of economic crises. The report notes that 21% of central banks expect to increase their gold reserves within the next year (value relatively unchanged from last year’s survey) and that no central bank expects to sell gold this year – down from 4% in 2020.

Also, CCommerzbank remains bullish on gold despite recent volatility. Although the German bank expects that the Fed will start tapering its quantitative easing by the fourth quarter, it’s forecasting rising inflation. As a result, nominal interest rates will stay below the inflation rate leaving real bond yields significantly below zero.

Implications For Gold

What does all this imply for the gold market? Well, there are both downside and upside risks for gold in the future. Possible drawbacks are the unwinding of the Fed’s bond-buying program and the new tightening cycle . Strengthening expectations of asset purchases tapering and normalization of the ultra-dovish monetary policy could trigger an increase in the interest rates and outflows from the gold market.

To the other group of factors, I would include higher inflation. After all, we have never seen such coexistence of dovish monetary policy and easy fiscal policy. Not surprisingly, investors started to worry about record-breaking inflation. As the chart below shows, market-based probabilities derived from options (calculated by the Minneapolis Fed, which computes probabilities from option prices) show that the previous expectations of the CPI annual rate above 3% over five years have significantly increased recently. Higher inflation would increase demand for gold as an inflation hedge and decrease real interest rates, supporting gold prices.


CPI Chart.

So, gold’s future depends on the Fed’s reaction to rising inflation, or whether or not investors will focus on nominal and real interest rates. If the U.S. central bank stays behind the inflation curve, real interest rates will stay in the negative territory, supporting the price of gold. However, if the Fed tightens its monetary policy decisively, or if investors focus on rising nominal bond yields in a response to inflation, the yellow metal may go down.

To that point, the most recent changes in the Fed’s framework, comments from the FOMC members and disappointing data about the U.S. labor market suggest that we are far away from any serious tightening. So, gold has room for moving higher.

Having said that, it seems that gold needs more negative events (or even a kind of financial crisis) to rally decisively further. So far, the U.S. economy remains in the boom phase and higher inflation doesn’t seem to significantly disrupt the functioning of the markets. Perhaps gold bulls will have to wait a bit longer until we move from reflation to stagflation. Today’s report on inflation and upcoming FOMC meeting could provide more clues about gold’s future. Stay tuned.

Read Full Story »»»

DiscoverGold

Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
• DiscoverGold
Public Reply | Private Reply | Keep | Last ReadPost New MsgNext 10 | Previous | Next
Follow Board Follow Board Keyboard Shortcuts Report TOS Violation
X
Current Price
Change
Volume
Detailed Quote - Discussion Board
Intraday Chart
+/- to Watchlist
Consent Preferences