Head of Commodity Strategy
Gold has settled into a $40 range ahead of a near-certain sixth rate hike from the Federal Open Market Committee on March 21. A repeat post-FOMC rally depends on the forward guidance and whether economic data, as seen recently, continues to weaken relative to expectations. Opposite movements in real yields and the dollar during this quarter have also added to the current stalemate.
The probability of sixth rate hike in this cycle next week has been put at 100%. The key in order to determine the impact on gold will be the forward guidance, which could signal a change from three to four rate hikes in 2018. The latter is currently being priced with a 26% probability following a couple of months where expectations have been raised on a regular basis.
The five rate hikes seen so far in this current cycle all resulted in the same behaviour with gold selling off ahead only to rally strongly once the announcement was made. All of these hikes were characterized as being dovish hikes hence the potential impact this time round should Jerome Powell, the new Federal Reserve chair, strike a more hawkish note.
Economic data have shown a weakening trend relative to expectations this year and this may accelerate should a global trade war erupt.
An emerging divergence between the dollar and US 10-year real yields – not least against the Japanese yen – has been another reason for gold's recent lack of direction. With 10-year nominal bond yields approaching 3% and inflation expectations anchored around 2%, the real yields have seen a steady increase this year. Countering this move has been the renewed strength of the yen against the dollar.
A constant source of support for precious metals during the past year has been provided by President Trump and his often controversial twitter habits. Trump's behavior remains unpredictable with geopolitical risk indicators having increased since he took office.
We maintain a bullish outlook for gold and it would take a break below $1,285/oz for that view to be altered. The last couple of weeks ahead US rate hikes have proven in the past to be a good buying opportunity.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
