Gold: Fed expectations support medium-term prices – Commerzbank

Commerzbank’s Thu Lan Nguyen reports that Gold has recovered as Trump’s signal of a possible end to the Iran war eased rate-hike fears. The bank argues that central banks are unlikely to react aggressively to temporary energy-driven inflation risks, given a weaker US labor market and political pressure on the Federal Reserve, leaving Gold well supported medium term.

War, rates and safe-haven demand

"Gold is regaining some ground after US President Trump signaled an imminent end to the war in Iran. This can be explained primarily by a decline in interest rate expectations, which had previously risen due to fears of inflationary consequences of increased energy prices. Since the start of the war, one interest rate cut by the US Federal Reserve by the end of the year has been priced out."

"In our view, these expectations were premature anyway. Even if the central banks have learned their lessons from 2022, when the energy price shock at the time led to a much stronger rise in inflation than expected, they are not necessarily likely to react much more quickly to inflationary risks."

"The US Federal Reserve is likely to take this into account, especially as it is already under massive political pressure to cut interest rates. For this reason, we consider gold prices to remain well supported over the medium term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)