(Kitco News) – The gold market continues to benefit from safe-haven demand as heightened recession fears continue to weigh on risk assets, according to some analysts.
The gold market saw some aftermarket buying on Tuesday, with prices steadily retreating above $1,700 an ounce, near a five-week high. December gold futures last traded at $1,719 an ounce, up 2.3%.
Silver outperforms gold as it sees a steady move above $21.50 an ounce. December silver futures last traded at $21.69 an ounce, up 3.69% on the day.
Tuesday’s rally follows Friday’s brief squeeze that pushed gold prices up 3% and silver prices up nearly 7% ahead of the weekend.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that gold’s fall above $1,680 is creating fresh momentum for gold. He also said that a collapse in cryptocurrency markets adds to gold’s allure as a safe haven.
Some analysts see Tuesday’s move as a continuation of Friday’s short-term rally, as trading data from the Commodity Futures Trading Commission shows bearish speculation near four-year highs. But other analysts said the rally could reflect a shift in market expectations as the threat of a global slowdown grows.
The 2-year/10-year inverted yield curve remains an important bearish indicator for many economists and market analysts. remains at the broadest level of the last 40 years.
Daniel Pavilonis, chief commodities trader at RJO Futures, said that along with growing recession fears, some whispered numbers on Wall Street called for weaker-than-expected inflation data on Thursday. Markets currently expect the US Consumer Price Index to show an annual increase of 7.9% which is lower than what could be positive for gold.
Expectations for lower inflation numbers are also shifting the outlook for the Federal Reserve’s December monetary policy decision. According to the CME FedWatch Tool, markets see a nearly 57% chance of a 50 basis point move next month.
“It looks like bond yields want to go lower as markets see the Fed slowing the pace of rate hikes next year,” Pavilonis said. “This weighs on the US dollar and helps gold prices.”
The US dollar index is trading near a seven-week low as it slips below 110 points.
Although the gold market has made some significant gains since last week’s two-year low, many analysts note that prices have just been pushed into neutral territory. Many analysts said gold prices needed to break above $1,735 an ounce before it could attract sustained upside momentum.
Some analysts are also warning investors against chasing the market as the Federal Reserve maintains its hawkish stance on monetary policy.
“When the Fed finishes raising rates, gold and bonds will be the best trade in the markets,” said Philip Streible, chief market strategist at Blue Line Futures. “But we just don’t know when the Fed will be done.”
Pavillonis added that while market expectations are shifting, they can easily retreat if inflation turns out to be higher than expected.
“The big caveat for the gold market remains wage growth because that will determine how stable inflation will be,” he said. “If inflation is going to be sticky enough, then the Fed will have to keep its hawkish stance longer than expected.”
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