Aggressive Federal Reserve rate hike bets as inflation expectations remain high are set to weigh on gold, strategists at TD Securities report.
Investors unlikely to grow their appetite for gold
“A flat and inverted yield curve has historically been associated with a slowing growth outlook and concurrently rising gold prices. This cycle, however, inflation’s increasing persistence is a constraint for the Fed, which suggests that a restrictive rates regime may persist for longer than historical precedents. In this context, gold prices are unlikely to rise with a deteriorating growth outlook until the Fed makes progress in the war on inflation.”
“US wage growth trends are validating near-term household inflation expectations, but appear to have settled at levels that would sustain a CPI inflation rate of 5%-6% going forward, far removed from the 2.5% rate consistent with the Fed’s inflation target. In turn, don’t count on investors to grow their appetite for the yellow metal.”
“Physical demand for bullion has remained elevated, but seasonal considerations suggest that this tailwind could soon fade following India’s festive season.”