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Precious metals are back at the top of the leader board, posting double-digit gains as the volatile commodity space keeps investors looking at gold, palladium, silver, and platinum.
On Thursday, the commodity space surged as oil prices rose on fears of possible supply shortages due to the Russia-Ukraine conflict.
"Volatility has been the defining feature across all asset classes in recent weeks, catalyzed by the Russian invasion of Ukraine," said DailyFX senior strategist Chris Vecchio. "The global supply chain is in disarray; commodity prices have surged, threatening both companies' margins and consumers' spending power; and central banks are pressing ahead with reducing stimulus and tightening monetary policy."
The big news still being digested by markets is the Federal Reserve's 25 basis point hike with projections of another six hikes for this year. On top of this hawkish stance, Fed Chair Jerome Powell told reporters that the U.S. economy "can handle" tighter monetary policy and that recession risk is not elevated.
"Gold prices are firming despite the undeniably hawkish FOMC, lending a lifeline to trend followers should prices close above $1,920/oz," said strategists at TD Securities. "The price action also suggests that a contingent sees the Fed's hiking profile as too slow given the inflation pressures facing the economy … While a coordinated buying impulse from a broad group of gold traders had helped gold prices rise dramatically in past weeks, we could still see a coordinated reversal inflows."
The Fed's hawkish view contrasts the warnings from organizations such as the International Monetary Fund (IMF), which stated that Russia's invasion of Ukraine would hurt the global economy by slowing growth and putting upward pressure on already red-hot inflation.
"The conflict is a major blow to the global economy that will hurt growth and raise prices," the IMF said Tuesday.
The global lender also noted Russia's invasion of Ukraine "may fundamentally alter" global economic and geopolitical order "should energy trade shift, supply chains reconfigure, payment networks fragment, and countries rethink reserve currency holdings."
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What's this year's 'potential end game'? Gold price at $2,500, oil price at $50 – Bloomberg Intelligence
Price standouts: palladium, silver, and gold
As oil prices rose above $100 again, metals also surged. Palladium jumped more than 5%, silver surged more than 3%, and gold rose 1.5% on the day.
"Oil prices are rising once again, with Brent and WTI now back above $100. It has been pushing higher throughout the day after the Kremlin pushed back against reports of substantial progress in ceasefire talks. It feels like a real setback just as things appeared to be heading in the right direction, which had allowed oil prices to fall considerably from the highs," said OANDA senior market analyst Craig Erlam. "Also contributing to the uplift is IEAs assessment of the oil market with Russian exports seen declining by around three million barrels per day."
At the time of writing, April Comex gold futures were up more than $30 and trading at $1,940.80 an ounce, May silver futures were at $25.49 an ounce, and June palladium was at $2,520 an ounce.
Analysts see gold's rally as dependent on the oil price performance for the time being. "If gold prices are to make another attempt to climb to and through their all-time highs, we're going to need to see another spike in oil prices and wheat prices to help revitalize inflation expectations. Otherwise, what's shaping up to be an ugly monthly candle for gold prices warns that the highs are in, and more downside is ahead," Vecchio said.
Also, it is not surprising that gold could stage another rally after the Fed embarked on a tightening cycle, said Commerzbank analyst Carsten Fritsch.
"A glance at previous rate hike cycles shows that gold tended to gain once the cycle began. The same appears to be happening this time too, though comparisons with past rate hike cycles are difficult in view of the war in Ukraine," Fritsch explained. "The gold ETFs tracked by Bloomberg registered inflows of 11 tons yesterday. Inflows since the start of the war in Ukraine three weeks ago total 117 tons."
On top of that, gold's downside is limited for the time being because of fears around high inflation and geopolitical uncertainty. "A combination of economic concerns, high inflation, and a dip in risk-appetite on the Kremlin comments have contributed to the spike in the yellow metal. At least two of these aren't going away any time soon, and there's nothing predictable about the actions of Vladimir Putin, so gold should remain relatively well supported for some time yet," Erlam added.
By Anna Golubova
For Kitco News
