FX.co ★ Gold is not ready to break new highs

Last week was another turbulent week for the gold market. However, despite strong bullish optimism, the precious metal is simply not ready to break through to new historical highs. And also, despite strong pressure from sellers, gold managed to stay above $2,000 an ounce ahead of the weekend.

Economic data helped to reinforce expectations that the Federal Reserve will raise interest rates by another 25 basis points next month. Looking at Friday's volatility, gold is on its way to achieving record highs above $2,075 an ounce. And it is likely to happen this year. But not in the near future.

According to recent economic data, it is clear that investors are taking a cautious position. Last week, everyone was paying attention to inflation indicators. And although consumer prices continue to decline, there are still some alarming trends in the economy.

The U.S. Department of Labor showed annual inflation rose 5% in March, down sharply from February's 6%. However, consumer prices, which exclude energy and food costs, remained unchanged at 5.6%. The threat to the Fed that higher inflation will take root in the economy as a whole has now increased.

The same trend was observed in the U.S. Producer Price Index (PPI). Over the year, wholesale prices increased by 2.7%, compared to the February figure of 4.6%. However, core inflation remained unchanged at 3.4%.

The Fed is likely to have to tighten monetary policy again by raising interest rates. This will become an obstacle for gold growth. Perhaps in the second half of the year, even in the face of persistent inflation, the Federal Reserve will have to stop the current tightening cycle after the May meeting to prevent the economy from falling into a recession.

This is becoming apparent from the banking crisis. Even the International Monetary Fund warned that if interest rates remain high for a more extended period, it could lead to a recession for the economy.

Last week, the IMF announced its forecasts for global GDP growth of 2.8% this year, just one point below its January forecasts.

According to currency analysts, the peak interest rates in May will keep the U.S. dollar in its current downward trend, creating comfortable conditions for the precious metals market. And gold remains in a stable upward trend.