Investing in Gold is a Long term play…

Gold bars and gold coins are arranged for a photograph at the YLG Bullion International Co. headquarters in Bangkok, Thailand, on Thursday, Aug. 8, 2013. Gold climbed to the highest level in three weeks on signs of increased physical and investment demand as the dollar weakened. Photographer: Dario Pignatelli/Bloomberg

Bond yields are rising in anticipation that the Federal Reserve would need to maintain its hawkish monetary policy, which is creating headwinds in the gold market.

Undoubtedly, the current climate for gold is difficult, and prices have room to fall; yet, numerous analysts have emphasized that nothing has changed to alter gold’s potential for long-term bullish movement.
We must examine the bond market in further detail in order to put the price movement of gold into context. Undoubtedly, bond yields are rising once more as the Federal Reserve considers raising interest rates to 5.50% in the next months as a result of consistently increased inflation.

The fact that short-term bonds provide investors with positive returns, making them once again desirable safe-haven assets, makes it even more difficult for gold. But this is when things get tricky.

The largest yield curve inversion in 40 years is currently occurring in the US bond market. Although the U.S. economy has shown to be more resilient than anticipated, the prospect of a worldwide recession has not diminished. According to some economists, the question of when a recession will occur, rather than whether, is relevant.
Inflation figures for January came in hotter than anticipated this past week, with the U.S. Consumer Price Index climbing 6.4% for the year. Economic experts anticipated a 6.2% increase. The U.S. Producer Price Index increased 6% annually in contrast to the forecasted 5.4% increase.

Markets currently anticipate that the Federal Reserve may increase interest rates by 50 basis points next month as a result of the most recent statistics on inflation. In the short term, this change in interest rates is bad for gold, but analysts have warned that the recession threat increases as interest rates are decreased by the Federal Reserve.

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