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Gold investors still need to be patient

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(Kitco News) – The gold market took another lifeline after falling to a two-year low after the Wall Street Journal reported that the Federal Reserve may begin to slow interest rates after its November monetary policy meeting.

Gold prices managed to close the week above $1,650, which is an important short-term psychological level for many investors and technical analysts.

Unfortunately, gold investors have been burned by false hopes before. When the markets begin to whisper about a potential pivot, gold investors jump into the market and create a short-term buying spree.

So far this year, Rallyes have proven to be short-lived because the truth is, with persistently high inflation, the Federal Reserve and other global central banks haven’t finished tightening their monetary policy.

Expectations for a final interest rate above 5% remain, although the Fed is able to slow rate hikes through 2023. Until that changes, the US dollar will continue to see significant bullish momentum, according to many market analysts.

And it’s not just US dollars. The Federal Reserve’s tightening cycle has pushed yields on 10-year bonds to their highest level since 2008, at over 4%. Real returns, as measured by Treasury Inflation-Protected Securities (TIPS), are trading at 1.7%, a 13-year high. Whichever way you look at it, it’s a tough environment for gold and precious metals.

For now, the keyword for gold investors seems to be patients. This was the main theme during the London Bullion Market Association’s Global Precious Metals Conference. While gold remains an attractive asset in the long run, many analysts said now is not the time to buy as the US dollar and rising interest rates will keep prices in check.

While the market is tough, many analysts said solid physical demand highlighted the booming potential for gold and silver when the Fed Funds rate peaked.

What makes this new gold rally a little different and sustainable is of course the fact that consumers are starting to feel the effects of rising interest rates and tighter market conditions are turning financial markets upside down.

The great uncertainty in the British bond market and the collapse of the Truss government after only 44 days in power show just how turbulent the global economy is. At the same time, the Bank of Japan constantly intervenes in foreign exchange markets to protect its economy from the unprecedented strength of the US dollar.

Even some major economists warn of a serious recession looming on the horizon. Roubini Macro Associate CEO and professor at NYU Stern School of Business, Dr. Doom himself wrote in a recent comment that the US could enter recession by the end of the year. He warned investors that in the next decade the world could face a “Stagflationary Debt Crisis” we’ve never seen before.

Roubini also said that in this environment, consumers should invest in assets that will protect themselves against inflation, geopolitical risk and environmental damage.

“These include short-term government bonds and inflation-indexed bonds, gold and other precious metals, and real estate that is resistant to environmental damage,” Roubini said.

While the recent rally underneath was short-lived, there is a feeling that investors should focus on the long-term potential.

Disclaimer: The views expressed in this article are those of the author and may not necessarily reflect those of the author. Kitco Metal A.S. The author has made every effort to ensure the accuracy of the information provided; but neither Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation for any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for loss and/or damage resulting from the use of this publication.