Prospects for inflation and gold prices
In March 2024, more and more analysts began to voice concerns about the Fed's future actions. Back at the beginning of the year, the consensus forecast was. The Fed will cut interest rates 3-4 times in 2024.
In January-February, there was cautious talk that perhaps we will see only 2 rate cuts. Some analysts stated that there may not be any rate cuts at all.
However, more negativity has emerged over the past week. There are already heard opinions that the Fed, after some time, will have to raise interest rates instead of lowering them. The reason is inflation, which is not thinking of coming down any further.
2023 it seemed to us that the Fed was moving in the right direction. The consumer price index (year over year) was steadily declining. However, something went wrong this coming year.
Rising petrol prices are pushing up inflation. And along with energy, food and goods are becoming more expensive. Why? Because most countries in the world continue to print money. Even if not in the same quantities as during the pandemic. Naturally, prices for everything go up.
Some of the new funds are flowing into the stock market, but it cannot absorb them entirely. As absurd as it may sound, the cryptocurrency market is becoming a saviour for the Fed. In the first three months of this year, there have been significant inflows into both funds and individual cryptocurrencies. If cryptocurrencies did not exist, they would need to be invented to combat inflation.
However, what about gold? Why does it continue to reach new highs without responding to talk of a Fed rate hike? In last week's article, we highlighted that central banks worldwide are still purchasing this metal in significant amounts, regardless of its price exceeding $2,000 per troy ounce.
Would anything change if the Fed increases the interest rate once or twice by the end of the year? The market is expected to react with a massive sell-off in gold ETFs. It is uncertain how long this will last, especially considering that retail investors hold a third less than they did a year ago. However, banks will be able to purchase a new volume of gold without causing its price to rise. The key question is whether there will be any investors or traders left to sell it further. Even a Fed rate hike may not interrupt the rally in the gold market.
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