After ending a 5-week winning streak last week, investors still see gold as an important alternative to legal tender, but the previous upward momentum has weakened.
According to Mr. Bob Savage - Chief Market Strategist at BNY, to restore the historical correlation between oil and gold, it will either be necessary for oil prices to increase significantly, or for gold prices to fall.
“In the past week, investors have stayed away from bonds due to concerns that the energy shock could reduce the possibility of interest rate cuts in the US and UK, while increasing the risk of rising interest rates in the European Union.
Gold prices fell 3% last week, the first decrease after 5 consecutive weeks of increase, as the USD rose 1.7%, the strongest increase in four years. Oil prices rose more than 20% and natural gas rose more than 50%, raising broader concerns about global inflation" - Savage wrote in a report.
Savage said the BNY's risk-taking sentiment index also reflected this, "when the iFlow Moody's index peaked two weeks before the conflict occurred (99th fraction - a very high level, 99% higher than the measurements in the index's historical data) and has now returned to neutral (64th fraction).
He added: "Investors are still eyeing gold as an alternative to legal tender, but momentum and demand have clearly decreased.
He also noted that most investors are tending to see the current conflict as just a nuisance factor and focus on basic economic trends.
Oil is still the main channel influencing inflation expectations, interest rates and the money market, while the recovery of the USD is repeating the scenario of the 2022 energy crisis.
However, the upward momentum of gold is weakening and risk sentiment is still neutral, showing that investors are not really prepared for a prolonged period of inflation" - Savage said.
