What is the outlook for the price of gold as markets shift from inflation to recession fears?

(Kitco News) Gold’s volatility has been relatively low compared to other assets as the precious metal retains its “soft bull market” status and is trading comfortably between $1,800 and $1,900 an ounce. But don’t expect the price of gold to rise until confidence returns to the market, according to MKS PAMP.

There is a shift in the market as inflation fears give way to recession panic, with equity investors opting for cash over safe havens like gold, strategist Nicky Shiels said. metals from MKS PAMP.

“There has been unprecedented damage to equities (and other assets) where silver has retreated to cash/USD, less to havens. Confidence must return,” Shiels wrote in a note. Thursday. “With last week’s selloff in the SPX, its correction is in line with the median correction seen in post-war recessions, but it is now the 4th worst ‘non-recession correction’ over the same period. We We are in a recessionary market Technically, SPX entered a bear market on June 13th.

The irony for gold bulls is that the precious metal will likely have to see a combination of lower returns and rising US equities for gold to hit the $1,880 an ounce level, he said. she explains.

As it stands, gold will have more buyers at the price of $1,900 per ounce versus $1,800 per ounce. “There is a noticeable lack of interest from the investment community (outside of retail coins/bars!),” she said. “Carnage in equity markets and other asset classes has kept the fringe player at bay.”

A potential trigger for higher prices would be if the Fed “breaks something” by aggressively tightening monetary policy.

“Federal funds are only at 1.75% (with CPI at 8.6%). Last week the Fed acknowledged inflation [and] took… a rise of 75 basis points. Overall, the details of the Fed’s statement were quite dovish (they acknowledged that the economy was deteriorating), and talk of the recession grew as data continued to disappoint and commodity prices raw materials are reacting to fears of demand destruction,” Shiels described.

And as the Fed continues to make adjustments to its “unconditional” fight for price stability, recessionary risks are becoming more visible in daily macro data.

“Today’s sentiment was not helped much by lackluster PMI data. Specific consumer and inflation-sensitive sectors, such as travel, are still the biggest decliners in June and are leading poster child for soaring inflation and tight consumption,” Shiels said.

The latest flash PMI data signaled “the weakest recovery in US private sector output since the Omicron-induced slowdown in January in June,” research firm IHS Markit said in its latest report.

According to the report, the flash U.S. manufacturing purchasing managers index (PMI) for June fell to 52.4, marking a 23-month low. The services sector saw the PMI index drop to 51.6 in June, marking five-month lows.

The only outcome that would be bad for gold is if the Federal Reserve remains too hawkish, Shiels pointed out.

“For inflation and the macro backdrop to be right, commodities need to be right, and if the Fed continues to climb +-50bps in commodity prices under pressure and a strong US dollar, it’s an additional form of monetary tightening; it would be a huge tightening cycle and behind gold’s bearish narrative (or at the very least explains the hesitancy of broad-based investor underwriting),” a- she declared.

At the time of writing, August Comex gold futures were trading at $1,826.60, down 0.64% on the day.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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