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Gold prices could rise again as inflation hits highest level

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Analysis by Golden FX Link Capital business manager Chhea Chhayheng.

Gold prices could rise again as inflation hits highest level

The price of gold dropped for three days in a row, losing more than 50 dollars, before the market closed at $1,791 per ounce on Friday.

However, the price of the haven asset recovered on Monday and has been energetically rising back, and while geopolitical tensions might not be a long-term driver, other fundamentals might.

Kitco News quoted US Bank Wealth Management senior investment strategist Rob Haworth as saying: “Geopolitical risks are creating some support for gold in the near term. However, the precious metal still faces a challenging year as the Federal Reserve looks to tighten its monetary policy aggressively to bring inflation back under control.

“While rising geopolitical tensions between the US and Russia continue to heat up, the gold market can’t ignore the fundamental environment in the long term.

“Gold prices can move higher in the near term, but geopolitical uncertainty is not a long-term sustainable driver because, ultimately, it gets resolved in some way, shape or form. At some point, the fundamentals will reassert themselves.”

As the annual inflation rate in the US accelerated to seven per cent in December – its highest level in 40 years, Golden FX Link Capital business manager Chhea Chhayheng said that “with inflation running hot around the world, gold prices should be well over $1,900”.

“Inflation numbers are screaming red hot, and that could be sending gold much prices higher than where they currently are. With gold recovering from a three per cent decline last week, bouncing off support at $1,780, the price was back to around $1,800 as of Tuesday,” he said.

The reason why gold prices are not reacting to the current inflationary environment, Chhayheng said, is that “the world is not seeing conventional inflation”.

“Prices are being driven by a global supply crunch caused by the ongoing Covid-19 pandemic. Investors keeping things broad is great, but when you keep things broad, you should still have precious metals like gold as a strategic portfolio to reduce risk,” he said.

For this week’s trading recommendation, with a price of $1,780 a good point for the reversal of gold prices, traders can place a buy position with a take-profit function at $1,815 and a stop-loss at $1,760.

Content image - Phnom Penh Post

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