Gold prices rose 2% as the main gauge of recession hit a 40-year high

Gold prices rose 2% as the main gauge of recession hit a 40-year high

Gold prices rose 2% as the main gauge of recession hit a 40-year high

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(Kitco News) – The gold The market no longer fears the Federal Reserve’s aggressive interest rate stance, as a critical recession marker hit its highest level in four decades, according to some market analysts.

Gold prices are getting a significant boost early Friday as investors reacted to news that the yield on the two-year note rose more than 50 basis points above the 10-year yield. It is the most prominent inversion of the yield curve since the 1980s, which is also the last time the Federal Reserve was so aggressive in tightening interest rates.

December gold futures last traded at $1,665.70 an ounce, up 2% on the day. Also, helping gold the market has renewed its bargain hunting, as the price managed to hold on to critical support near last month’s $1,621 an ounce.

Many economists have pointed out that the inversion of the yield curve – where short-term borrowing costs exceed long-term costs – has always preceded recessions.

“The threat of a recession is at a 40-year high, which will continue to help gold prices,” said Ole Hansen, head of commodity strategy at Saxo Bank.

While markets continue to expect the Federal Reserve to raise interest rates aggressively through 2023, Hansen said those expectations could change quickly as the threat of a recession materializes.

“Investors will quickly realize that the Fed will not be able to return inflation to its 2% target. We expect to see slower economic growth and inflation of 4% to 5% and this environment will be favorable for gold.”

Bullish sentiment has been quietly building in the market this past week after the World Gold Council said global physical demand for gold rose 28% in the third quarter. Along with strong retail demand, the report indicated that central banks bought nearly 400 tonnes of gold between July and September, the biggest quarter of purchases on record.

While the precious metals market has seen strong retail demand, investor demand has been overwhelming, which has had the biggest short-term impact on prices, according to analysts.

However, analysts said the rise in investors’ fear sentiment could lead to renewed safe demand for gold.

“You don’t have to look very hard to find things to worry about in this economy, and as that fear grows, gold it becomes much more attractive,” said Bob Minter, director of ETF Investment Strategy at abrdn.

Even if gold made some significant gains on Friday, analysts warn there is still work to be done. That’s what Hansen said gold the bottom is coming out, and now investors need to see how prices can rise.

He added that he wants prices to break above the initial support at $1,675. However, the ultimate target is around $1,730 an ounce.

“We can confidently call the bottom if prices bounce back above $1,735. That will put gold back on an upward trend,” he said.

Note: The opinions expressed in this article are those of the author and may not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee this accuracy. This article is for informational purposes only. It is not a request to exchange commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no liability for loss and/or damage resulting from the use of this publication.

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