Hawkish Monetary Policies and Concerns
Gold prices remain under pressure, indicating that investors may be concerned that hawkish monetary policies worldwide have reached their limits, despite persistent inflation. While the U.S. Federal Reserve maintains its hawkish stance, there are indications that the European Central Bank (ECB) may be ready to shift towards a more neutral monetary policy and adjust its inflation target rate.
ECB Monetary Policy Decision
The head of research at Capitalight Research, Chantelle Schieven, suggests that the ECB could lay the groundwork for potential changes in monetary policy during its upcoming monetary policy decision. Many economists believe that it will be challenging for the ECB to continue raising interest rates as the regional economy slows down.
Potential Shift in Economic Era
During the Federal Reserve’s central bank symposium, ECB President Christine Lagarde expressed the possibility of entering a new economic era. Lagarde acknowledged the challenge of maintaining stability and stated the need for flexibility in policy analysis rather than relying solely on outdated data and models.
Inflation Expectations and Commodity Markets
Schieven believes that inflation will remain elevated due to persistent supply constraints in commodity markets, particularly in food and basic materials. She cites the oil market as an example, with OPEC+ supply cuts supporting near-record prices. With rising sovereign debts, central banks face difficulty in controlling inflation. Schieven points out the expected $2 trillion increase in the U.S. deficit this year.
Gold as a Hedge Against Inflation
Schieven argues that gold is well-positioned to benefit from higher inflation, as it keeps real bond yields and the U.S. dollar in check. She anticipates headline inflation above 3% or 4% in the coming years. While the Federal Reserve maintains its inflation target, Schieven reminds investors that financial sectors operate within a dynamic environment where absolutes do not exist.
Federal Reserve’s Monetary Policy Approach
Schieven highlights that the labor market will significantly impact the Federal Reserve’s monetary policy. Any notable weakness in the labor market is likely to prompt the Fed to focus on its dual mandate of full employment and price stability. While gold investors may need to exercise patience, Schieven sees the potential for gold prices to reach $2,000 per ounce by the second quarter of next year, with an expectation of a reduction in prices by the end of next year.
Potential for Gold’s Rally
Despite being stuck in a neutral phase, Schieven believes that gold’s resilience and strong demand in the marketplace can trigger a rally to new all-time highs. She emphasizes that gold prices should be lower given the strength of the U.S. dollar and high bond yields, but the fact that prices remain elevated indicates robust demand.
