GOLD bubble or not?
Weekly Analysis 6 Apr, 2024
Last week, despite the strong Non-Farm Payroll (NFP) numbers, the market experienced an unexpected surge that caught everyone off guard. This was primarily due to two simultaneous events: an earthquake striking New York City (NYC) and the release of the NFP report. The recent earthquakes, first in Taiwan and now in NYC, raised concerns about the resilience of infrastructure, particularly in NYC, and its potential direct impact on the US economy. Furthermore, escalating tensions between Israel and Iran have heightened fears of a nuclear conflict. Federal Reserve's Kashkari worsened market uncertainty with his statement, causing an immediate downturn before NFP.
Kashkari's remark, suggesting that the Fed would not cut rates this year if inflation stagnates, contributed to the market's reaction. Despite this, gold prices have been steadily rising since mid February, hitting new all time highs daily. Although Fed's Logan stated that it's premature to discuss rate cuts, there is a noticeable shift in the tone of Fed officials.
This erratic market behavior is fueling a bubble in gold prices. Investors appear to be ignoring the Fed's warnings, likely due to past events such as significant rate hikes before the collapse of SVB Bank last year, followed by a swift pivot from tightening to rate cuts in October last year.
Last week, despite the strong Non-Farm Payroll (NFP) numbers, the market experienced an unexpected surge that caught everyone off guard. This was primarily due to two simultaneous events: an earthquake striking New York City (NYC) and the release of the NFP report. The recent earthquakes, first in Taiwan and now in NYC, raised concerns about the resilience of infrastructure, particularly in NYC, and its potential direct impact on the US economy. Furthermore, escalating tensions between Israel and Iran have heightened fears of a nuclear conflict. Federal Reserve's Kashkari worsened market uncertainty with his statement, causing an immediate downturn before NFP.
Kashkari's remark, suggesting that the Fed would not cut rates this year if inflation stagnates, contributed to the market's reaction. Despite this, gold prices have been steadily rising since mid February, hitting new all time highs daily. Although Fed's Logan stated that it's premature to discuss rate cuts, there is a noticeable shift in the tone of Fed officials.
This erratic market behavior is fueling a bubble in gold prices. Investors appear to be ignoring the Fed's warnings, likely due to past events such as significant rate hikes before the collapse of SVB Bank last year, followed by a swift pivot from tightening to rate cuts in October last year.
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