Will Gold Rally Continue Into Upcoming Months?
Sunshine Profits | Jun 10, 2021 10:53AM ET
May was certainly a positive month for the yellow metal. Gold could keep its momentum later this year, but a lot depends on the Fed and inflation.
We left May in the rearview mirror, and as the chart below shows, it was the second positive month in a row for the yellow metal. Goldrose 7% last month – and 12.3% since the local bottom on March 31, 2021. The jump was driven mainly by inflation fears, a weak real interest rates .
Hence, I was right: the second quarter has been so far much better for the shiny metal than the first one, in which it declined by 11%. Gold even jumped temporarily above $1,900 at the turn of May and June. Since then, it has been fluctuating around this level. All this means that the yellow metal fully recovered its Q1 losses, finishing last month virtually flat year-to-date.
Now, the key question is: What’s next for gold? Outlooks are, as always, divided. Some analysts point out that gold’s struggle to move decisively north above $1,900 amid all the increase in the rally in gold is something I also worry about.
But on the other hand, some believe that gold is still in a long-term gold ETFs recorded their first monthly inflows since January 2021, but also the highest ones since September 2020.
Furthermore, economic crises . The report notes that 21% of central banks expect to increase their gold reserves within the next year (value relatively unchanged from last year’s survey) and that no central bank expects to sell gold this year – down from 4% in 2020.
Also, CCommerzbank remains bullish on gold despite recent volatility. Although the German bank expects that the monetary policy could trigger an increase in the interest rates and outflows from the gold market.
To the other group of factors, I would include higher inflation. After all, we have never seen such coexistence of and decrease real interest rates, supporting gold prices.
So, gold’s future depends on the Fed’s reaction to rising inflation, or whether or not investors will focus on nominal and real interest rates. If the U.S. central bank stays behind the inflation curve, real interest rates will stay in the negative territory, supporting the price of gold. However, if the Fed tightens its monetary policy decisively, or if investors focus on rising nominal bond yields in a response to inflation, the yellow metal may go down.
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To that point, the most recent changes in the Fed’s framework, comments from the FOMC members and disappointing data about the U.S. labor market suggest that we are far away from any serious tightening. So, gold has room for moving higher.
Having said that, it seems that gold needs more negative events (or even a kind of stagflation . Today’s report on inflation and upcoming FOMC meeting could provide more clues about gold’s future. Stay tuned.
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