Gold bulls are trapped again as the Fed went hawkish on Wednesday, preparing for a rate hike in March and a reduction in its balance sheet before the end of the year.
After the central bank's decision on monetary policy, Fed Chairman Jerome Powell added hawkishly that the economy and labor market are in good condition to withstand a potential rate increase.
The only problem is that some economists and analysts are now starting to wonder if the US Central Bank has taken a too aggressive position, especially amid the continuing deterioration of economic conditions. The concern is that sharp tightening could stifle economic growth this year.
Meanwhile, it is clear that volatility is increasing although stocks managed to get out of a deep hole this week. This makes overvalued markets extremely vulnerable.
At this point, gold turns out to be insurance. While the precious metal was hit hard, falling about 3% after Wednesday's monetary policy meeting, many commodity analysts are not ready to give up the precious metal.
Economists noted that gold is not just a hedge against inflation, which has reached a 40-year high according to the latest PCE data. It's also more than hedging risks in a shaky stock market. Currently, it is insurance against the Fed's political mistake.
A slowdown in US economic growth and moderate inflation could create a positive role for gold.
Last week, the World Gold Council reported that despite depressing investor demand for gold-backed exchange-traded products, demand for gold increased by 10% last year.
And although the price of the gold market has dropped, the insurance against inflation in the precious metal has not disappeared.