FiboGroup Market Analysis 2018
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The gold price has remained in a tight range over the last 3 trading sessions as equity markets in the US continue to swing wildly and are now down 10 percent from recent high’s which translates as a market correction.
Some analysts claim that investors are currently sitting on the sidelines to wait and see if this correction in equities is a temporary measure, or the beginning of a much bigger downtrend and when this becomes apparent, the money will start moving back into gold again.
“People need to lose more confidence in equities. Once they see that markets are not going to turn around right way, they will look at taking more defensive positions and I would expect them to turn to gold,” said Jasper Lawler, head of research at London Capital Group.
Analysts from Goldman Sachs also agree that the gold price usually takes time to climb higher after a pullback in the stock market and especially considering the speed of the latest fall over the past few days.
“We find that it usually takes a month or so of equity market drawdown for gold to start to act like a hedge. The most likely reason for this is that gold is primarily a hedge against systematic risk,” the analysts said.
“If a sell-off is brief, and can be attributed to technical factors, then gold reacts less vs. a deeper, longer and more fundamentally driven decline with worsening fundamentals and macroeconomic outlook.” They added.
Thursday’s release of CPI numbers from the US is seen as crucial for the gold price as a round of positive numbers is likely to spark fears of a more aggressive rate tightening cycle from the US Federal Reserve which in turn is likely to see US stocks once again sold off sharply.
Some analysts claim that investors are currently sitting on the sidelines to wait and see if this correction in equities is a temporary measure, or the beginning of a much bigger downtrend and when this becomes apparent, the money will start moving back into gold again.
“People need to lose more confidence in equities. Once they see that markets are not going to turn around right way, they will look at taking more defensive positions and I would expect them to turn to gold,” said Jasper Lawler, head of research at London Capital Group.
Analysts from Goldman Sachs also agree that the gold price usually takes time to climb higher after a pullback in the stock market and especially considering the speed of the latest fall over the past few days.
“We find that it usually takes a month or so of equity market drawdown for gold to start to act like a hedge. The most likely reason for this is that gold is primarily a hedge against systematic risk,” the analysts said.
“If a sell-off is brief, and can be attributed to technical factors, then gold reacts less vs. a deeper, longer and more fundamentally driven decline with worsening fundamentals and macroeconomic outlook.” They added.
Thursday’s release of CPI numbers from the US is seen as crucial for the gold price as a round of positive numbers is likely to spark fears of a more aggressive rate tightening cycle from the US Federal Reserve which in turn is likely to see US stocks once again sold off sharply.
fibogroup.com
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The Bank of England voted to keep interest rates on hold at 0.5 percent last week but after inflation data released today it seems as though a rate hike by the central bank may not be too far off.
Even before today’s data, the BOE warned that it might have to lift rates sooner than expected on the back of stubbornly high inflation
"Monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report," the bank said.
Today’s release shows inflation in the UK sits at 3 percent, which is really starting to hit the economy in the UK as wage growth remains stagnant which has eroded the purchasing power of consumers.
By lifting rates, the BOE hopes to bring down inflation to around 2 percent by the end of the year but some fear as expectations grow of more aggressive rate hikes, the sterling may rise further, well before the rate rises take effect which may exempt the need to implement consecutive rate hikes.
"Markets had moved quickly this year to discount more tightening from the BoE. The hawkish tilt of this meeting will at the very least, vindicate these moves and possibly encourage further expectations. Said Michael Metcalfe, global head of macro strategy at State Street Global Markets
“What will be key now is to watch how sterling responds, as a much quicker appreciation could produce a faster fall in inflation and potentially nullify the need for a more rapid tightening cycle." He added.
Even before today’s data, the BOE warned that it might have to lift rates sooner than expected on the back of stubbornly high inflation
"Monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report," the bank said.
Today’s release shows inflation in the UK sits at 3 percent, which is really starting to hit the economy in the UK as wage growth remains stagnant which has eroded the purchasing power of consumers.
By lifting rates, the BOE hopes to bring down inflation to around 2 percent by the end of the year but some fear as expectations grow of more aggressive rate hikes, the sterling may rise further, well before the rate rises take effect which may exempt the need to implement consecutive rate hikes.
"Markets had moved quickly this year to discount more tightening from the BoE. The hawkish tilt of this meeting will at the very least, vindicate these moves and possibly encourage further expectations. Said Michael Metcalfe, global head of macro strategy at State Street Global Markets
“What will be key now is to watch how sterling responds, as a much quicker appreciation could produce a faster fall in inflation and potentially nullify the need for a more rapid tightening cycle." He added.
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