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Trends & Analysis
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News
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Gold recovers after closing at a two-year low

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Asset Watch

Should you hideout in gold?

 

Thursday, September 15 2022, 11:50am GMT

Risk assets plunged as anxious investors feared that higher interest rates would derail the U.S. economy when the U.S. Consumer Price Index (CPI) came in hot on Sep. 13. Expectations also moved in a profoundly hawkish direction, following the futures traders pricing in a U.S. federal funds rate of 4.31% in April 2023. As the previous weeks’ optimism essentially eroded in one day, could gold be a safe place to hide until sentiment shifts?

 

Gold has been stuck in a downtrend since it peaked during the Russia-Ukraine conflict in March. However, after each sell-off, the yellow metal has recorded short-term rallies before the next leg lower. With gold down by more than $100 from its previous high, another short-term upswing could ensue before the next bout of volatility.

Source: TradingView

Despite the decline on Sep. 13, gold did not fall below the intraday low of $1,701.70 set on Sep. 7,
recording higher highs and higher lows since the beginning of September. As a result, the relative strength is increasingly bullish.

Furthermore, gold often suffers the most from evaporating liquidity, as higher real interest rates and a stronger U.S. dollar are akin to fundamental kryptonite. Yet, with the U.S. dollar surging on Sep. 13 and the U.S. 10-year real yield hitting a new 2022 high, gold held up quite well.

Therefore, is $1,750 more likely than $1,650?

 

Sources:

30-day Fed funds futures quotes:

https://www.cmegroup.com/markets/interest-rates/stirs/30-day-federal-fund.quotes.html

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