What is the outlook for gold prices as markets shift from inflation to recession fears?

(Kitco News) Gold’s volatility has been relatively low compared to other assets as the precious metal maintains its “moderate bull market” status and is comfortably trading between $1800 and $1900 an ounce. But don’t expect a spike in gold prices until some confidence returns to the market, according to MKS PAMP.

There is a shift in the market as inflation fears give way to recession panic, with equity investors opting for liquidity over safe havens such as gold, said Nikki Shiels, metal strategist MKS PAMP.

“There has been unprecedented damage in equities (and other assets) as money slumps into cash/US dollar, and less so, safe havens. Confidence should return,” Sheels wrote in a note on Thursday. “With last week’s sell-off in the SPX, its correction is in line with the average correction seen in the post-WWII recessions, but it is now the fourth worst “non-recession correction” during the same period. We are in a recession. Technically , SPX entered a bear market on June 13.”

She explained that the irony for gold bulls is that the precious metal will likely need to see a combination of lower yields and higher movement in US stocks for gold to rise to $1,880 an ounce.

Under the current situation, gold will have more buyers at $1,900 an ounce versus $1,800 an ounce. “There is a noticeable lack of interest from the investment community (outside of retail coins/bullion!). Carnage in stock markets and other asset classes has kept the fringe player at bay,” she said.

One potential catalyst for price hikes could be if the Fed “breaks something” as it tightens aggressively on monetary policy.

“Fed funds are just 1.75% (with CPI at 8.6%). Last week the Fed acknowledged inflation [and] Took… lift 75 points per second. Overall, the details of the Fed’s statement were very pessimistic (they acknowledged the economy is getting worse), and talk of a recession has increased as disappointing data continues and commodity prices respond to demand-destroying fears,” Shels described.

As the Fed continues to make adjustments to its “unconditional” struggle for price stability, the risks of a recession are becoming more evident in the daily macro data.

“Bad PMI data did not help sentiment much today. Consumer and inflation-affected sectors such as travel remain the biggest losers in June and are the first picture of higher inflation and nervous consumers,” said Shiels.

In its latest report, research firm IHS Markit said the latest flash PMI data points to “the weakest rise in US private sector production since the January slowdown caused by Omicron in June”.

According to the report, the US manufacturing PMI for June fell to 52.4, hitting a 23-month low. The services sector saw the PMI reading fall to 51.6 in June, hitting a five-month low.

Shiels noted that the only outcome that could be bad for gold is for the Federal Reserve to remain very hawkish.

“To get inflation and the macro background right, one would have to correct the commodities, and if the Fed continues to rise at +50 basis points in compressed commodity prices and a higher US dollar, that is an additional form of monetary tightening; that would be a massive tightening cycle and behind gold’s bearish narrative (or at least explains the reluctance of broad-based investors).”

At the time of writing, August Comex gold futures are trading at $1,826.60, down 0.64% on the day.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.

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