To say that a further slowdown in industrial production was telegraphed in advance would be an understatement, as now investors take the run of soft survey data in the US at the stated value.
And while it felt like we were in cruise control on China reopening and moderation in gas prices that have massively improved the global growth outlook easing the non-US recessionary tail.
Beyond the US recession worries, inflation concerns on the back of the China reopening are brewing once again thanks to Fed Bullard; hence more persistent inflation could still require another round of tighter monetary policy.
At the same time, a stern reminder to the dollar bears was dished out overnight, suggesting global growth contagion from the US could restore dollar safe-haven demand.
Gold markets were trading lower at Asia open despite recession concerns and a fall in UST yields, which typically signals to buy gold. Sure, there could be a negative wealth effect setting in; however, EM central bank purchases should help sustain gold above fair market value and will likely be the dominant driver taking center stage away from wealth management and the private sector institutions, which have typically driven gold prices.
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The good news is that central banks put gold in a vault and leave it there for decades, so there is little threat of it returning to markets. But given the expected turn in the dollar, growth concerns, and a less threatening rates climate, any day should be a good day to buy gold in this environment.
Still, buyers must be on guard about persistent inflation that would force the Fed’s hand higher. While the dollar weakness concentrated in advanced economies plus higher prices may limit official gold demand, at the same time, negative carry discourages speculative futures demand from CTA’s.
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT