While markets are waiting with anticipation for the FED to wrap up tightening inflation experts believe it will not decelerate as soon as most expect. Despite better-than-expected reports and recently released data, some analysts are sure that inflation may turn out to be a decade-long problem. If so, it may trigger record-high gold prices.
We might observe gold prices playing a massive catch-up round expecting to reach $2,050 per ounce. Experts believe the commodity will hit record price tags exceeding the above-mentioned peak stated in August 2020.
So, we can expect the trends to change and traders to turn bullish on the yellow metal taking into account oil indices up 200% and the GDX down around 35% the same year.
On the one hand, the Fed takes measures to ease the aggressive inflation-tightening cycle. This fact makes the market incorrectly price in inflation. As soon as the FED stops raising rates, the new big inflation problem will be automatically triggered. In simpler words. Even if the rate goes lower, a new spiral of inflationary psychology will be launched.
People will face an awful truth: inflation will never get back to 2% as promised by the FED. What’s more, it will turn out to be a decade-long problem. Most investors will have nothing to do but look for a steady instrument. They will turn to gold.
We already saw this kind of gold-inflation correlation example back in the 1970s. Today, we are experiencing the replay of those events with some slight differences. The FED aggressively increased rates during 1973. It led to the gold price correction by 45%.
A few years later, the Federal Reserve had to give in. The year-over-year inflation basis remained at 5% without any move. This is what we observe right now. On the one hand, month-over-month inflation tends to decline. On the other hand, year-over-year inflation remains very strong.
As soon as markets realize, the FED rate hikes are over, the gold price will receive a new psychological boost getting prices to a record high through $2,000 to $2,050 and even more.
The second crucial thing markets should clearly understand is that inflation is not ending. We actually do not have overhead resistance. It means gold prices can reach any high. Traders should not be surprised to see it at $3,000 by the end of this year no matter how outrageous it may sound.
Other drivers to push the gold price forward include China reopening followed by a big shock and pressure on commodities. Additionally, we should take into account the Western ETF investor to get back to the market featuring central banks that keep adding gold to their reserves.
May the trading luck be with you!