馃弳 GOLD: UNDERSTANDING IT 馃弳
To understand the possible behavior of this metal in recent years, we must analyze the macroeconomy of the Western world, especially that of the United States. Since 2019, there was a plan to inject liquidity into the financial system in order to produce inflation; then, the FED should control it with traditional monetary tools. The goal was to align monetary and fiscal policy, and have tools to boost the economy in the event of a financial crisis [Source: https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/global-macro-outlook/august-2019 ].
On the other hand, there is a popular belief that gold is the best safe asset against inflation. It could be a half-truth because there is no correlation with current inflation, but it could be true with inflation expectations (the most complicated thing to measure exactly). This may make sense when comparing the gold price rise from 2019 to 2020, when inflation was below 2% but expectations were higher. In fact, from 2021 to 2023, during the worst of inflation, the price was sideways.
Today (April, 2024), the price has increased but inflation is supposedly controlled; In fact, the market expects cuts in interest rates. If the hypothesis is true, a new inflationary wave is possible, where the probabilities of commodities appreciation [ https://jjplindex.blogspot.com/2024/03/commodities-probabilities-of.html ]
and all the expansionist policies [ https://jjplindex.blogspot.com/2024/02/portfolio-state-interventionism.html ] anticipate it. Despite theoretically there being a contraction policy on the part of the Central Banks, liquidity indicates the opposite. Someone is lying.
Nevertheless, If a slowdown is true, this movement could reflect deception. It would be a trap to increase the price by exaggerating news about tensions with Russia, Iran or China, and then proclaim peace in 2025 and the markets fall. Whatever, the chart shows the gold correlations with the main commodities based on a 5-year returns. What do you think?
The best analysis is yours!
J. Joel Padilla
Copyright: Joel Padilla 2024
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