Inflation, which continues to rise globally, particularly in the US, continues to influence market pricing. The consumer price index (CPI) rose 1 percent month-on-month in May and rose 8.6 percent year-on-year, the sharpest since December 1981, according to data released in the US on Friday. Contrary to expectations, inflation continued its upward trend, reducing risk appetite in markets amid fears that the Fed’s aggressive tightening policy could last longer than expected.
75BASE POINTS RATE INCREASE INCLUDED IN THE PRICE
While the aforementioned development increased selling pressure in the bond markets, the inversion of the yield curve for some assets increased recession fears. While the 2-year US bond yield hit 3.20 percent, its highest level since 2007, the yield curve of 3-, 5-, 10- and 30-year US bond yields began to price in recession risk.
On the other hand, the possibility of a 75 basis point rate hike, previously described as unlikely by Fed officials, has been reintroduced into pricing. At the meeting, which will take place this week, money markets priced in that the Fed would raise interest rates by 75 basis points to control inflation with a 25 percent probability, while the probability of a rate hike increased by 75 basis points to 53 percent at the July meeting.
THE DOLLAR STARTS A RISE INTO THE NEW WEEK
After spending the last two trading days of last week in wild volatility, the dollar/TL started the new week closing just above 17.10. Dollar/TL is trading at 17.26 while Euro/TL is trading at 18.11.
ONS GOLD AND GRAM GOLD PRICE
Gold prices have been hovering around $1,850 for the past three weeks. The yellow metal bounced off support after strong selling pressure on Friday. However, gold’s price per ounce is valued at $1,865, down 0.4 percent in the new week.
In contrast, gram gold, which had risen to 1,062 lira prior to Dec. 20 and settled at all-time highs, had risen above the critical TL 1,000 mark again over the past week. With the announcement of the New Economy programs, although the dollar/TL exchange rate fell briefly below this level, no durability could be achieved. Gold’s gram price started on an upward trajectory on Monday, June 13th. Despite being quiet below the ounce, the dollar-backed gram gold is now hitting the buyer at 1034 lira after starting the day at 1029 lira.
“GOLD DOES EXACTLY WHAT IT SHOULD BE”
In examining forecasts for gold prices, RJO Futures senior market analyst Bob Haberkorn made the following assessment for the precious metal:
“Gold does exactly what it’s supposed to do. Investors are once again viewing gold as an inflation hedge and safe haven asset. The market realized that the Federal Reserve could do nothing to curb inflation. The Fed is likely to raise rates further. However, even this will not be high enough not to cover inflation anywhere. In that environment, what you really want is gold.”
YEAR-END GOLD FORECAST
Citi analysts also expect high volatility and stagflation hedges to likely support support around $1,800. However, they keep their 6-12 month yellow metal forecast at $1,900. Metals Focus consultants assume that the demand for precious metals will decrease for various reasons. The reasons are the corona virus and the economic slowdown as well as weak jewelry sales and individual investments in China.
“As policy rates rise and inflation falls, we expect real interest rates and yields to rise significantly in the second half, putting pressure on gold prices,” the group said in its annual Gold Focus report. Gold Focus predicts that the price of gold will average $1,830 in 2022. In other words, they realized a 1.7 percent increase from last year’s estimate of $1,799.
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Unprecedented increase in the second hand!
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