Recently, short-term fluctuations in gold prices have occurred quite often. Analysts advise not to pay much attention to it. Currently, it is better to consider gold as a long-term investment.
The geopolitical and macroeconomic woes are the main reasons for high volatility in the gold market. Last Friday, gold fell by 1.6% due to the strong Nonfarm payrolls report.
Gold kicked off the new trading week with steady growth. On Monday, it rose by 0.5%, or $ 10.30. The quotes ended the session at $1,934 on the New York Stock Exchange.
Gold prices climbed despite the strengthening of the US dollar by 0.4% and a rise in the 10-year US government bond yield. Both assets grew yesterday amid optimism about a sharper increase in the interest rate by the Fed.
Hawkish sentiment increased at the end of last week after the release of the jobs report. It showed a rise in average hourly wages and a decrease in the unemployment rate in March.
Macroeconomics stats would continue to adversely affect gold but a strong driver appeared. Gold went up thanks to the de-escalation of geopolitical tensions.
Ukrainian authorities blamed Moscow for killing civilians in a village west of Kyiv.
The Ministry of Defense of the Russian Federation denied the accusations saying that Russian military forces were not responsible for these murders. Nevertheless, the leaders of some European countries have already called for tougher sanctions against Moscow.
Some analysts fear that inflation may soar even more after the new sanctions against Russia. Inflationary pressure is bullish for gold. Gold is considered one of the best hedges against inflation.
As inflation risks are intensifying, many market experts share their opinions. For instance, Robert Minter believes that inflation will remain permanently high around the world due to the military conflict in Eastern Europe.
The conflict between Russia and Ukraine has already radically changed the geopolitical landscape, showing which parties are allies and opponents, he stressed. Currently, many countries are trying to develop internal supply chains as quickly as possible, increase their own production of raw materials and nationalize it. China has always limited the export of its most important goods. However, now, Europe and the United States are doing the same to renewable energy sources, key technologies, and batteries.
Minter reckons that globalization, which the world has been striving for in recent years, is already nearing its end. Countries will incur serious losses because of that. Therefore, commodity prices are sure to soar to new highs. It may also lead to a jump in consumer prices in the foreseeable future.
Economic expansion is likely to be hammered by inflation. Gold will only benefit from stagflation. Many investors are already beginning to realize that the classic 60/40 portfolio no longer works. If they want to keep their capital, they should invest in commodities, including gold.
Now, gold is also considered an excellent hedge against a possible political mistake by the Fed, Minter points out. If the central bank raises the interest rate too quickly, there is a high probability of a recession. This scenario is also favorable for gold.