According to MKS PAMP metals strategist Nicky Shiels, the market is shifting as inflation fears give way to recession fears, with equity investors preferring cash to safe havens like gold.
Gold’s volatility has been low in comparison to other assets, as the precious metal maintains its “mild bull market” status and trades comfortably between $1,800 and $1,900 per ounce. According to MKS PAMP, a gold price rally will not occur until market confidence returns.
There has been unprecedented damage in equities (and other assets) where money has retreated into cash/US$, and less so in safe havens. Confidence must be restored.
On June 13, the SPX technically entered a bear market. With last week’s sell-off, the SPX’s correction is in line with the median correction seen in post-WWII recessions, but it is now the fourth worst ‘non-recession correction’ over the same period. We are in a market downturn.
The irony for gold bulls is that the precious metal will likely require a combination of lower yields and a rise in US equities to reach $1,880 per ounce, she explained.
As things currently stand, gold will have more buyers at $1,900 per ounce than at $1,800 per ounce. Outside of retail coin/bars, there is a notable lack of interest from the investment community.
One potential catalyst for a price rally would be if the Fed “breaks something” by aggressively tightening monetary policy. And, as the Fed continues to tweak its “unconditional” pursuit of price stability, recession risks become more visible in daily macro data.
According to IHS Markit’s latest report, the latest flash PMI data indicated “the weakest upturn in US private-sector output since January’s Omicron-induced slowdown in June.”
According to the report, the flash U.S. manufacturing Purchasing Managers’ Index (PMI) fell to 52.4 in June, a 23-month low. In the service sector, the PMI fell to 51.6 in June, marking a five-month low.
The Federal Reserve remaining too hawkish would be a negative outcome for gold.
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