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(Kitco News) – According to some market analysts, the gold market is no longer afraid of the aggressiveness of the Federal Reserve’s interest rates, as a critical indicator of recession has reached its highest level in the last four decades.
Gold prices are gaining significant momentum early Friday as investors react to the news that the two-year banknote yield has risen more than 50 basis points from 10-year yields. This is the most significant yield curve inversion since the 1980s, which was also the last time the Federal Reserve was so aggressive in tightening interest rates.
December gold futures were last trading at $ 1,665.70 an ounce, up more than 2% over the day. Helping the gold market is also a renewed bargain hunt as the price managed to hold a critical support above last month’s low near $ 1,621 an ounce.
Many economists have noted that a reversal of the yield curve – the cost of short-term borrowing outweighs the long-term costs – has always preceded a recession.
“The threat of a recession is at its highest level in 40 years and will continue to support gold prices,” said Ole Hansen, head of commodities strategy at Saxo Bank.
While markets continue to expect the Federal Reserve to aggressively raise interest rates until 2023, Hansen said those expectations could change rapidly as the recession threat materializes.
“Investors will soon realize that the Fed will not be able to bring inflation back to its 2% target. We expect to see slower economic growth and inflation between 4% and 5% and this environment it will be bullish for gold. “
Bullish sentiment rose quietly in the market last week after the World Gold Council said global physical demand for gold rose 28% in the third quarter. Coupled with solid retail demand, the report notes that central banks bought nearly 400 tons of gold between July and September, the largest quarter of purchases on record.
Although the precious metals market has seen solid retail demand, investor demand has been bad, which has had the biggest short-term impact on prices, according to analysts.
However, analysts said increased investor sentiment could drive renewed safe-haven demand for gold.
“You don’t have to search very carefully to find things to worry about in this economy and as this fear grows, gold becomes much more attractive,” said Bob Minter, director of ETF Investment Strategy at abrdn.
Although gold made significant gains on Friday, analysts note that there is still work to be done. Hansen said gold is carving a low and now investors need to see how much prices can rise.
He added that he wants to see prices rise above the initial support at $ 1,675. However, the ultimate goal is around $ 1,730 an ounce.
“We can safely call the low if prices can move back above $ 1,735. This will send gold back into an uptrend,” he said.
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