A huge surge in US inflation has supported gold in recent days. But what to expect from gold prices in the future? Will they be able to ride this wave of growth to $2,000?
The 5-day gold rally, which started at the end of the previous week, reached a one-month high. The asset closed yesterday's session at $1,984.70. This was the highest level since March 11.
Compared to Tuesday's results, when gold soared by 1.4%, it increased by 0.4%, or $8.60, on Wednesday. Gold's safe-haven status is helping it maintain the uptrend.
This week the statistics on US inflation for March were released. The first batch of data showed that the consumer price index rose by 8.5% year-over-year. The last time inflation was this high was in January 1982.
Yesterday, the US producer price index also set a new record in March. It was up by 11.2% compared to 2021. This was the biggest jump in 12 years.
Gold, which is considered a hedging instrument against inflation, responded to the alarming statistics with a confident growth. Even an increase in hawkish sentiment by the Fed did not prevent the bullion from rising.
With U.S. inflation now turning extremely hot, the Fed is likely to make a 50 bps rate hike at the upcoming May meeting.
However, will raising rates by just half a percentage point be enough to curb the skyrocketing prices? Most market participants don't seem to believe that. Otherwise, how else can one explain the increased demand for protective gold?
At the same time, there is a high probability that the Fed's next move will be even more extensive. If inflation continues to run higher amid geopolitical tensions, the U.S. central bank will begin to consider a 75/100/200 bps rate hike.
According to analyst Nicky Shiels, this is the scenario we are likely to see in the near future. This means that gold has more roadblocks ahead.
Throughout most of 2021, precious metal growth has been limited by the Fed's hawkish rhetoric. Now it looks like talks on tighter monetary policy will have a negative impact on bullion prices this year as well.
Experts believe that in current conditions it will be very difficult for gold to reach above the psychologically important level of $2,000 again.
The last time quotations crossed this threshold was when Russia launched a military special operation in Ukraine. At the moment, the geopolitical situation remains tense, and this supports the prices of the precious metal.
However, news headlines about the escalation of the conflict are not enough to push gold higher to the key level. Gold needs a perfect combination of factors, both geopolitical and macroeconomic, to break through this level.