Inflation, Economic recovery, and War, what is Gold role?
The latest peace talks between Russia and Ukraine had some sort of progress, at least in tone. However, there is a long way to get to the point, especially in way of implementation of agreements. Ukraine accepted being impartial if other countries like Israel, Turkey, Poland, and Canada will be its security guarantors, the country will remain neutral and non-nuclear, including giving up the production and deployment of weapons of mass destruction. As the Ukrainian claim, this agreement will still need to be backed by a people's referendum to take effect.
Russia claims that they reduced the military activity in Kyiv and Chernihiv, saying that Putin also accepted to meet Zelenski, as he was asked before. This news and reports boosted market confidence that they will finally reach a peace deal that would avert a tragic world war. Negotiations will continue virtually by video conference. However, waiting for results in the short term is unlikely.
While these hopes and news boosted the euro back strongly above the 1.11 level for the first time since March 18 and eased the Safe-haven gold fell to as low as $1,889 for the first time in more than a month, before recovering above $1,920, there are several issues that we have to watch them closely.
The US bond yields are falling back with benchmark 10-years yields back to 2.34%. This inversion in all 2,3,5,10,20 and 30 Years Bond Yields was seen after FED official speeches that most of them backed the more tightening policies in the next meeting. Yesterday we also had the US home price index, and published data showed that house prices increased by 18.2% in January, and it is even expected to increase more in February and March data, which strongly increases the inflation expectation. With higher expectations for inflation, most probably we can see the short-term bond yields also increase, and get closer to the longer-term yields. Higher bond yields traditionally are not in the favor of gold's price.
And finally, about Economic growth. The latest tensions in Ukraine increased the market risk and rapidly lifted the raw material prices. Increasing inflation as a result of higher producer prices can push the central banks towards more tightening policies, which will decrease the pace of economic growth. Lower economic growth means a slower increase in the stock and other markets, and all of them together will increase the gold safe-haven demand.
In short word, as long as we have ongoing risks, no matter geopolitical or economic growth risks, it is so unlikely to see the bears in charts for a longer period. Side movement with a bullish tendency is more likely at this level.
From the technical point of view, as you can see in the below figure, in the daily chart, gold still moves in a clear uptrend, and as long as it's trading above 1,877 US dollars, we can say that yellow metal still can moves higher.
