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Gold Approaches Friday Lows

ANZ on mixed signals for gold:

  • Gold eased on Friday as a strong US jobs report bolstered the Fed’s case for using aggressive rate hikes to tame inflation. This has seen Treasury yields soar and the dollar rally, weakening investor demand.
  • Nonetheless, the ongoing war in Ukraine is likely to see demand for the safe-haven asset remain strong.
  • Our gold valuation model of the gap between fair value and spot gold prices has gone from zero to $300/oz since Russia invaded Ukraine, suggesting a risk premium high. In addition, the secondary impacts of the Russian-Ukrainian crisis will provide important support. Russia’s wider isolation will lead to structural change in the energy sector, which will be inflationary.

TD notes that while the Fed’s rate hike isn’t as positive for gold, the Federal Reserve:

  • “Politics still has a long way to go to be neutral again…and gold will continue to be fairly firm”

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