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Many Factors Put Pressure on Gold. What Makes Gold Prices Stable?


The U.S. dollar index fell 0.37% on Wednesday (December 22) to near 96.10. The euro, Australian dollar and other currencies rebounded against the U.S. dollar. As U.S. regulators granted emergency use authorization for Pfizer’s new crown oral drug, investors’ views on the economic outlook became more pronounced. Optimistic, risk appetite has rebounded, suppressing the U.S. dollar’s safe-haven demand; the weakening of the U.S. dollar helped gold prices rise above the 1,800 mark; major U.S. stock indexes generally rose, and due to the greater-than-expected decline in U.S. crude oil inventories, international oil prices fluctuated higher on Wednesday To a two-week high.

On Thursday (December 23) Asian market in early trading, spot gold maintained the gains of the previous trading day and held steady above US$1,800. In 2021, the trend of gold is difficult, with a decline of nearly 5% throughout the year. Some analysts said that with the high inflation in 2022, the Fed's interest rate hike cycle and the rebound in physical demand, analysts expect gold to rise by 15% in 2022 and return to the $2,000 mark.

Since inflation is one of the main concerns this year, many investors believe that gold will rise based on its inflation hedge assets. But Elisio pointed out that there are many other conflicting information, including the U.S. stock market, strong economic recovery, the U.S. dollar and real yields. Elisio said: "We have seen that this year's investment in equity strategies has almost exceeded the sum of the past 20 years. This is almost the best period in the history of the stock market. This hinders the development of gold. The dollar index has risen by approximately this year. 8%. This is a natural headwind for gold. If you look at the actual yield, the actual yield on the 10-year U.S. Treasury bond rose from about -1.1% to -0.6% during that time. The economic performance was better than most people expected. Much better."

In addition to these unfavorable factors, until a few months ago, people believed that inflation was temporary, which also dragged down the price of gold. Even now, the five-year break-even inflation rate is still close to 2.5%-2.7%, which means that the five-year inflation rate expected by the market is closer to 2.5% instead of 6.5%. This includes expectations that the Fed will drastically reduce its bond purchases and raise interest rates several times.

However, it remains to be seen whether the inflation rate can return to close to the Fed's 2% target. It is worth noting that after the Fed started its interest rate hike cycle, gold performed quite well. Once the Fed completes its debt reduction plan and raises interest rates at a faster-than-expected rate, it may push the price of gold to bottom and start to rise. This may actually be the cause of the rise in gold prices.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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