Weekly Markets Diary - Commodities

Going for gold?

The chart shows how the price action for much of 2022 has come under pressure from the new environment of interest rate hikes. This is because higher interest rates equate to a greater opportunity cost for holding the asset.

The Federal Reserve yesterday evening increased its year-end expectations for the base fund rate for 2022, 2023 and 2024. The hope is that much of the worst of the inflation impacts have been broadly priced in, meaning that “only” a further spike in underlying inflation could cause even higher future expectations on rates.

Is now the time to buy gold?

Price action is attempting to recover from oversold levels and has settled into a new near-term trading range of 1660-1680. The issue remains that price is in a clear negative trend.

So even if some buying interest were to emerge on the hope/belief that prices could form a base as the inflation hedge story is allowed to build, it would likely face significant selling pressure on any meaningful rally. This would keep the stance skewed to represent any buying as simply a “bear market rally” unless really quite significant gains are made.

This leaves a potential trading buy for the more active, with the caveat that at the early stage any such move would be contra trend. If this was to prove to be a more meaningful bottom, we would expect there to be opportunities to buy the move at a later stage when the outlook is clearer. You should be aware that you can sell in this market too.  

So, while we could see some tempted to buy here, we would stay cautious for the moment and allow others the glory/danger of attempting to catch the precise bottom.

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