S&P 500 just getting started; further losses in stocks will continue to support gold – analysts

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(Kitco News) – Continued selling pressure in the stock market is helping gold The market is once again a safe-haven asset. Some economists believe that rising inflationary pressures are heightening the risk of an economic slowdown.

this gold The market managed to break above key initial resistance at $1,830 an ounce as stocks continued to suffer losses. Investors are fleeing stocks as rising inflation weighs on first-quarter earnings, according to market analysts.

The S&P 500 fell 4% on Wednesday, its biggest one-day drop since the global COVID-19 pandemic swept financial markets in June 2020. The selling pressure didn’t ease much as the S&P fell another 1% on Thursday.

Simultaneously, gold Prices found support at $1,800 an ounce on Wednesday, with some technical follow-through buying on Thursday. Gold futures for June delivery were last at $1,843.70 an ounce, up 1.5% on the day.

“Gold seems to finally be seeing some safe-haven money as the market reacts strongly to the threat of a recession, not just expectations of higher interest rates. The latter pushes up yields, making the dollar more attractive, while they cause The economic woes appear to be more of a fit for gold inflows, said Craig Erlam, senior U.K. and European market analyst at OANDA.

While gold’s price action over the past two months has been disappointing, some analysts say it has acted as a safe-haven asset, outperforming equities. Gold has remained largely neutral this year, while the S&P 500 is down 18%.

In the short term, some analysts are looking for lower stocks.

“We think the recent decline underscores that earnings expectations will be a growing headwind for equities, something we’ve been warning about for some time,” Capital Economics market economist Thomas Matthews said in a note Thursday. risk.”

“We don’t expect valuation pressures to ease anytime soon. While headline inflation may have peaked, the Fed is clearly still uneasy because it is well above target, as Jerome Powell highlighted earlier this week. Our view is that a significant exit from austerity programmes is unlikely until inflation is further contained,” he added. “In other words, we don’t think the ‘Fed put’ will take effect anytime soon.

Matthews said he expects the S&P 500 to bottom around 3,750 when the dust settles.

While rising interest rates remain a headwind for gold as the Federal Reserve looks to hike rates sharply throughout the summer, some analysts say market volatility should act as a balancing act.

“Further declines in equities are likely to support gold and silver. However, gold and silver bulls are disappointed that the selling pressure on equity indices over the past few weeks has not provided more support for the safe-haven metal,” he said in Advanced Technical Analysis at Kitco.com Teacher Jim Wyckoff.

Wyckoff added that while stocks provide important gold support, the main driver of the precious metal remains inflation.

“Overall, rising inflation that will become more problematic in the coming months will be bullish for metals,” he said.

Ole Hansen, head of commodity strategy at Saxo Bank, said: goldThe dollar’s move above $1,839 could help reverse some of the bearish sentiment plaguing the market. However, he added that there are still some heavy lifting in the market.

“Gold is not out of the woods yet, it’s too early to talk about $2,000, but for now, the outside markets have turned to more gold Friendly than in a long time,” he said in a comment to Kitco News.

“We maintain our bullish outlook gold Given the need for diversification amid a struggling stock market and an increased risk of a FOMC policy misstep leading to lower yields and the dollar, Hansen said in a note on Thursday. “Gold’s year-to-date performance in U.S. dollars can be seen as disappointing from an absolute return perspective, but given the impact of a stronger U.S. dollar and sharp declines in stocks and bonds, any diversified investor holding gold is likely to will be satisfied.”

Disclaimer: The views expressed in this article are those of the author and may not reflect the views of the author Kitco Metals The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation for any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the authors of this article do not accept responsibility for loss and/or damage resulting from the use of this publication.

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