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Despite rising inflation, there is a downtrend in the precious metals market. Some experts think gold could benefit from rising prices worldwide, predicting a massive rally in gold.
The asset is currently under pressure from Fed monetary policy. On Tuesday, Jerome Powell's hawkish statements pushed gold down.
The chairman of the Federal Reserve said the regulator should accelerate the winding down of its asset purchase program. Powell's statement shocked traders, amid concerns over the potentially dangerous coronavirus strain looming over the market.
Gold went down immediately by almost $40 after Powell's speech and fell by 0.5% on Tuesday, which contributed to the asset's decline in November by 0.4%.
The precious metal partially recovered on Wednesday, supported by growing uncertainty over the Omicron variant of COVID-19. Gold edged up by 0.4% or $7,80, closing at $1,784.30 per ounce. The bullion was also boosted by the weakening US dollar and falling yields of US treasury bonds.
Recent positive economic data failed to give support to the US dollar. According to Wednesday's report by ADP, US non-farm employment rose in November by 534,000, beating estimates. The ISM manufacturing PMI increased to 61.1% in November, in line with expectations.
Concerns over the new coronavirus strain weighed down on the dollar, boosting demand for gold as a safe-haven asset.
"There remains a bit of safe-haven demand for the precious metals as there is still some uncertainty and anxiety in the marketplace," Jim Wyckoff, senior analyst at Kitco Metals noted.
The Federal Reserve is set to discuss accelerating QE tapering at its next meeting on December 14-15.
Experts believe the gold's recent gains to be encouraging. Jerome Powell's statements were priced in by the market, and market players think the Fed is behind the curve on inflation, which could be a positive factor for gold.
Leah Goehring, managing partner of Goehring & Rozencwajg Associates, sees inflation rise by more than 9% due to a "black swan" event on the commodity market, such as an oil shock similar to the 1973 OPEC embargo or an agricultural shock.
Goehring noted that the underinvestment in the resource sector this year will affect the economic situation in the following year, boosting inflation.
According to Goehring, rising prices would force the Fed to aggressively hike the rates, leading to chaos in the markets. "This time around, however, the Fed will have to give up on raising rates because it will be too painful for everyone," Goehring said.
"When Fed Chair Jerome Powell began his first term, he tried to raise rates, which backfired in the Treasury market. That's why I think that Powell will have to give up on raising rates, just like he did in October of 2018," Goehring pointed out. "Once the precious metal bottoms from the Fed's tightening action, it will begin its massive bull market," he said.
"It will be the decade of shortages, and everyone's going to get poorer except for the people that own physical gold and silver," Goehring commented. "By 2028, gold could be over $10,000. If gold is over $10,000, and we go back to the 20:1 gold-silver ratio. That's $500 silver," he added.
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