Breaking news: Gold prices continue to rise this week. Risk appetite increased with the interpretation of the minutes of the US Federal Reserve (Fed) May meeting, announced last week, as awareness of inflationary pressures and the possibility of wait until September, if necessary, while being flexible in raising interest rates. In addition, the fact that personal consumption expenditure, which was announced in the United States on Friday and taken into account by the Fed as an indicator of inflation, recorded the lowest annual increase in 4 months on an annual basis, indicating that inflationary pressures will diminish.
Globally announced data from the Manufacturing Purchasing Managers’ Index (PMI) also reinforced comments that the risk of recession is low despite the slowdown in economic activity.
With these developments, it is seen that investors are putting their worries about inflation and growth in the background, and the data to be announced this week is essential as investors receive signals about the flexibility with which the Fed can act in interest rate increases. In this context, Fed Chairman Jerome Powell’s meeting with US President Joe Biden will be followed, as well as the US non-farm payrolls report and the Beige Book.
ONS AND GOLD GRAMS
On the international market, the ounce of gold exceeded the critical level of 1860 dollars. The price per gram of gold, which opened at 965 lira, is now meeting the buyer at 978 lira, after hitting the highest level of 981 lira during the day.
DEVELOPMENTS TO FOLLOW THE MARKETS
Analysts noted that in the new week, in which data on inflation in the eurozone and Germany will be monitored, data on growth, inflation and the country’s foreign trade balance have come to the fore. As the measures put in place amid the novel coronavirus (Covid-19) outbreak in China across Asia remain at the center of the agenda, guidance from the Bank of Japan (BoJ), which, unlike its peers, have adopted an accommodative monetary policy, is also closely monitored.
“LIKE WALKING ON THE EDGE OF A NARROW”
As investors searched for an answer to the question of “what awaits the gold market,” a critical assessment came from Merk Investment President and Chief Investment Officer Axel Merk. According to Merk, who defines the precarious position of the Federal Reserve as walking on the edge of a very narrow chasm, although the central bank wants to contain inflation, it will not risk creating a recession which the markets are increasingly worried about. in addition.
“THE FED NEEDS TO BE MORE AGGRESSIVE”
Billionaire investor Bill Ackman, founder of Pershing Square Capital Management, says the US central bank needs to act aggressively now. Until inflation is dealt with satisfactorily, investors don’t know how long it will take the Fed to suppress inflation. In a statement on his social media account, Ackman made the following assessment:
“Uncertainty is the enemy of markets, especially in the short term. By aggressively raising rates now, the Fed can protect and restore stock markets and economic strength for everyone, while curbing the inflation that destroys livelihoods, especially the most unfortunate.
WHAT ROLE WILL GOLD PLAY?
However, analysts say the inflation data is giving the Federal Reserve some breathing room, so it will continue to talk tough but still lag the inflation curve. Meanwhile, volatility will remain elevated and financial markets will be dispersed. While gold will face headwinds from rising interest rates, its role as a safe haven asset and inflation hedge is not yet complete. Axel Merk gave the following definition of the role of gold in a portfolio:
“Gold is an asset that you are always happy to have yesterday, but you don’t know why you would buy it tomorrow.