Can gold gain from rising macro uncertainty?

The Federal Reserve‘s potential softening of the stance on tightening and macroeconomic uncertainty bodes well for gold, feel experts, although they add given some easing off geopolitical tensions the outlook remains uncertain.

The Fed on Wednesday hiked its key interest rate by 25 basis points, a move that was largely priced in given the elevated US inflation prints in January and February and the expected spillover impact on global energy and commodity prices from sanctions on Russia.

“As expected, the Fed skipped a 50 basis point hike given the geopolitical uncertainty and resulting growth vulnerabilities. This less aggressive policy stance of the Fed was welcomed by markets. While the Fed maintained that more hikes were on the table, it remains to be seen how it strikes a balance between containing inflation and supporting the economic recovery from the pandemic,” said Chirag Mehta, senior fund manager, Alternative Investments, Quantum Mutual Fund.

Economic indicators like the US Treasury Yield curve, US consumer confidence, US retail sales are pointing to a weakening growth outlook.

“While the Fed is already behind the curve when it comes to taming inflation, ill-timed tightening comes with the risk of triggering a recession. In summary, potential softening of the Fed’s stance on tightening and macroeconomic uncertainty bodes well for gold,” Mehta added.

The Russia-Ukraine war has also created an air of uncertainty for the precious metal.

“The key question for gold in times of geopolitical crises is always whether economic and financial market risks are on the rise or whether they are receding. For the moment, the gold market is reflecting the latter even though it is constantly assessing the situation, which remains highly in flux and highly uncertain. The gold market is thus taking a very rational stance on a war that affects us as humans primarily emotionally,” said Carsten Menke, Head Next Generation Research, Julius Baer.