The repercussions of rising inflation globally continues to dramatically pressure gold prices.

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Ask any investor or market participant whether gold prices have been steadily moving to higher prices based on rising inflation levels. However, that short trend came to a logical conclusion in trading today. Gold had a series of gains over the last five trading sessions finishing up with a gain of 1.5% on the week. However, that trend quickly diminished and evaporated today as market participants reacted to extreme dollar strength when the dollar index reached a two-year high. The invasion by Russia into Ukraine exasperated the concerns about global economic contraction.

Since the two primary safe-haven assets are gold and the dollar, as yields from U.S. debt instruments continue to advance when pitted against gold which does not produce a guaranteed fixed return, changed the balance for those investors seeking a fixed income. Add to that the high probability that rate hikes will continue on their current course and dramatically increase over time as the Federal Reserve realizes that these actions do not have any profound or a mediocre impact on reducing inflation.

Over the last couple of weeks various Federal Reserve members including Charles Evans, the president of the Federal Reserve Bank of Chicago, suggested that the fed funds rate could go as high as two ½% by the end of the year. Higher interest payouts are the nemesis to gold prices rising.

The truth of the matter is, with the recent rise in price that was prolonged and at a very strong upward tact was prone to any fact that could modify the pace at which gold has been rising and even go far as creating a price decline. Such was the case today.

While today’s price decline indicated that gold is still susceptible to new developments in fundamental factors, the truth is inescapable as far as many analysts including myself are concerned. Inflation has nowhere to go but higher. This is based on real events as food and energy costs continue to spiral to higher levels. In fact, as long as Russia maintains a military presence committed to acts of genocide in Ukraine, the only possible outcome besides the definite hardship caused by Russia’s military action is higher food and energy costs.

While actions of central banks worldwide in conjunction with the Federal Reserve will raise rates in attempts to slow down the pace at which inflation is growing, ultimately they hold no tools whatsoever to correct the underlying problem which stems from problems in supply chains rather than demand. It is because of that reason that I believe any correction will be short-lived and gold will continue to move higher at some point in the very near future. As I said the other day it is not if but when gold will challenge $2078 the most recent high achieved a few months ago.

 

Wishing you as always good trading,

Gary S. Wagner - Executive Producer