Commodities

Gold and inflation!

Author: Trade Pro Skills

Wednesday, 19 January 2022 Number of words: 404 Study time: 3 Minutes Views: 4

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Can gold hold the bulls with bond yields fast-rising?

Market analyst – IFC Markets

These days everything is about inflation and different guesses about the central bank's monetary policies. For gold traders and investors, while weaker stock markets can lift the gold demand and price, on the other hand, fast increasing bond yields can cap the bulls. 

First days of this week, gold eased a little bit, and then with increasing safe-haven demand, yellow metal continued to increase towards its one month high above 1,830, which has been a strong resistance level in the past months, in both different up and downtrends, and now targeting the 2021 November high, at 1,877 USD. Traditionary, January is the golden month for yellow metal however this year seems it is not that much shiny, however, still have the opportunity to increase, as many investors and traders looking after a strong and trusted hedge against inflation that they believe central banks may not be able to control it. Earlier this year in the first trading days of 2022, with fast increasing inflation and more pricing on a faster rate hike, Gold touched over the 1,831 USD, but later it fell lower towards 1,787 as December inflation numbers showed some degrees of cooling in both US and China.

At the same time, increasing inflation and inflation expectation lift the bond yields all across the globe. Today 10-year German bond yields rose above 0% for the first time since May 2019 after we saw the German inflation was confirmed at 5.3% in December. US ten-year bond yields also increased today towards 1.90% for the first time in two years.  

Today we had inflation numbers from different economies across the world. German and Canadian inflation confirmed at 5.3% and 4.8% in December, respectively, while UK CPI numbers rose to 5.4%, and more than estimates. 

Earlier this week, BoJ was the first major central bank that had a monetary policy meeting, with not many changes in its policies, while People Bank of China cut the rates for some leading credits by 10bp. And now eyes will be on central banks in Euro and US to see how they are planning to control the inflation. 

From the technical point of view, price moves above main MA lines, as you can see in the bellow figure with RSI at 62, which confirms the trend strength. 1,830 was the important resistance that has been breached, and now the next target sitting at 1,877.

Gold and inflation
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