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Gold will be gold

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Carlsquare
21 Jun 2022 | 2 min read
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The US’s central bank, the Fed, and other central banks around the world are trying to fight inflation with increasing rates and QT. In parallel, important global PMI is above 50 and the US labour market is adding new jobs at a historically strong pace. Nevertheless, market participants see an increased risk of stagflation followed by a recession.

The US’s central bank, the Fed, and other central banks around the world are trying to fight inflation with increasing rates and QT (Quantitative Tightening). In parallel, important global Purchasing Managers Index PMI is above 50 and the US labour market is adding new jobs at a historically strong pace. Nevertheless, market participants see an increased risk of stagflation followed by a recession. That at the back of many factors, whereof the Philly Fed Business Index turned negative for June, the first since the COVID lockdowns. Also, 59 per cent of US manufacturers are counting on a recession that lies ahead. This implies that the better bets may be on non-cyclical stocks and/or precious metals.

Below is the price development of the S&P 500 index and gold since April 2006. As shown, the gold price clearly outperformed S&P 500 during, but also following the recession due to the financial crisis of 2007-2008. Is this a pattern that will repeat?

S&P 500 (in USD) versus gold (in USD), April 2006 to June 2022

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The gold price is currently between levels around 1 800 and 1 870 USD per troy ounce. Momentum is negative but improving.

Gold price (in USD), daily 12-month share price chart

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

Gold (in USD), weekly five-year chart

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Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

 

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

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