Bullions could be in for more volatility

 Just last week we were discussing the opportunities ahead that would makes gold  strong in the near future. And here it is! Finally gold moved on to the upside and there was complete turn of tables as gold once again witnessed safe haven buying.

For RiddhiSiddhi Bullions Limited, there was enough evidence to prove that gold was definitely here to stay. Once again, it has proved its worth as a safe haven asset in times of uncertainty and also as a hedge against inflation. Strong reversal signs from U.S. and EU markets, the U.S. bond from its peak and the subsequent fall in the USD made markets run on extreme short coverings and extreme over sold zones. This paved way for gold which is expected to scale towards $1732-1735 bracket very soon.

Gold prices jumped more than 2 per cent on Monday boosted by a dip in the US dollar and bond yields, as recent lows enticed investors and also sparked a rally in silver in potentially its best day since late-2008.  

The two precious metals are catching a solid safe-haven bid as the global stock and financial markets remain jittery, as media outlets are focusing on a desperate Russian president that may resort to using nuclear weapons in his war with Ukraine, and amid bullish outside markets that see higher crude oil prices and a weaker U.S. dollar index on this day and not forgetting the geo political and economic crisis.

Fed and Dollar-  Gold soared the most since March, helped by a continued decline in Treasury yields, as traders weighed concerns that central banks’ monetary tightening will lead to recession and the possibility that bond rates may have reached a peak.
Bullion extended its first weekly gain in three weeks, as lower bond rates boosted the appeal of the non-interest bearing asset. Silver gained the most since February 2021 as traders bought back their previously short positions with the dollar and bond yields moving lower. It seems clear that apart from the above mentioned concerns- what’s driving the precious metal right now is the dollar- it continues to remain important remains important for gold prices, although even its impact on the metal appears to have weakened.

Central Banks- Central banks will also continue to support gold prices with their buying
The fact that the Fed and the ECB are leaving interest rates low could provide support for gold alongside weak economic growth. However, gold appears to be in a holding pattern for now and looks strong from here.

Global stock and financial markets and Recession. There are reports and rumours swirling that investment bank Credit Suisse may be in serious financial trouble. If a major global investment bank may be on the verge of collapsing and the dictator of the nation with the most nuclear warheads in the world has his back against the wall, while at the same time major global economies are battling inflation and teetering on recession, it appears increasing numbers of the public are now opting to possess gold and silver. “It will be important for the gold and silver bulls to show follow-through price strength this week, which would then begin to suggest sustained price uptrend, could develop in both metals.” says the top gold dealer in India.

once again, it appears when the heat in the marketplace gets turned up significantly hotter and trader/investor anxiety rises above what could be considered normal or even a bit elevated levels, demand for the safe-haven metals kicks in more aggressively

As mentioned above, there are a number of factors that have influenced precious metals, but we need to see gold and silver in the broader perspective. Comparatively, gold has so far been one of best performing assets in its class in 2022. Gold has outperformed U.S. bonds, foreign bonds, S&P 500, foreign stocks, NASDAQ and US Treasury Inflation Protected Securities (TIPS)

The largest bullion dealers in India are running an hypothesis stating that traders will now look to US jobs data due on Friday for more clues on the future path of central bank monetary policy. That means bullion could be in for more volatility.

Now as geopolitical and recessionary crisis escalate, we will see more and more investors shifting focus to gold as a move of their defensive strategy. Rise in demand of such high quality liquid assets will put gold at the top position per se returns generation in its asset class.

Noisy Challenges ahead for Gold

 Many believe that markets have been behaving very strange lately. But frankly speaking, I did not find this new. This was bound to happen amid rising US dollar and US bond yields. Needless to say, the recession is prevailing in most EU economies and if DOW has tumbled-3500 (-12%) in the past 6 weeks, it got discounted on day to day basis after data releases.

According to the gold dealers in India, “The Pound's crash is showing markets have a lack of confidence in the UK and that its financial strength is under siege.  The UK is now in the midst of a currency crisis. British government bond prices collapsed on Monday, pushing yields to their highest in over a decade with 2-year Gilt yields jumping by more than 50 basis points for a 2nd session running to 4.53%, the highest since September 2008.
 
That means UK bond prices are on track for their biggest slump of any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and Bank of England data.
 
European bond prices also slid on Monday, led lower by Italian sovereign debt, after victory for a coalition led by the Brothers of Italy in the country's snap election, forced by parties across the spectrum pulling their support for former European Central Bank chief Mario Draghi as caretaker premier. There’s a fear that the new actions will add uncertainty to the economy.
 
“The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the U.S. economy is going to perform. The USD surge along with bond yields are at a new decade high, making the recession woes more amplified and asset grinding.” shared the largest Bullion dealers in India.
 
Amidst all this gold too was not spared. Gold prices rose on Tuesday as the dollar slipped, but the metal languished near a 2-1/2-year low on prospects of further rate hikes by the U.S. Federal Reserve to tame soaring inflation. As long the Dollar continues its relentless rise and until the market reaches peak hawkishness and yields start to top out, gold will struggle to act as a defence against stagflation.

As fears of a widespread U.S. recession mount, the global marketplace started Monday in choppy waters. The dollar’s continued strength has been a headache for gold bugs, as the Yuan hit 2008 lows and the British pound sterling was hit by the U.K.’s plan to sell more government bonds in a bid to better their economic growth. The dollar’s advance stalled on Tuesday, providing relief for the non-interest-bearing metal. While gold is seen as a traditional haven in times of economic distress, fears of a global recession stoked by central banks’ monetary tightening have instead triggered big gains in the greenback.

Global stock markets fell for the 15th session in the last 20, while government bond prices also fell again together with most industrial and energy commodities in Dollar terms.

The top gold dealers in India believe that The focus is still on dollar strength, and it could continue to weigh on the precious metal as more rate hikes to tame inflation will dent gold’s safe-haven status.
Gold prices started the week on the defensive amidst shrinking open interest and volume, hinting at the likeliness that further losses look not favoured and therefore a potential rebound could be in the offing. In the meantime, decent contention has so far emerged around the $1,620 level per ounce troy.
The prevailing upside risk to inflation and, hence, monetary policy tightening still remains a key obstacle limiting gold's upside.

Fed officials on Monday sloughed off rising volatility in global markets and said their priority remained controlling inflation. 

Gold prices have declined more than 20% since rising above the key $2,000 level in March, as rapid U.S. rate hikes made the non-yielding bullion less attractive and also pushed the dollar to multi-year highs. 

But there are some who believe otherwise. Even though gold prices have fallen more than $400 since the precious metal broke through a critical $2,000 level in March, some experts are seeing positive signs amid the noisy challenges. 

The gold loyalists believe that the yellow metal could jump in value if the Federal Reserve's campaign of interest-rate hikes fails to crush inflation. Owing to the rate hikes, investors could lose faith in the central bank and their long-term inflation expectations would rise, boosting demand for the metal as a hedge.

This week, the market may face fresh volatility from the release of US inflation data and public speaking engagements by Federal Reserve officials including Vice Chair Lael Brainard and New York Fed President John Williams.