Superstar Wealth: Real yields remain low under the Fed's recent interest rate hike

Many gold investors are happy to forget about 2021, as precious metals fall behind the hot commodity market for much of the year. Superstar Wealth said the gold market was hit by sluggish demand as investors focused on tighter rates from the Fed's reduced monthly bond purchases in November, despite a historically positive price environment of negative real interest rates. A growing number of people expect the Fed to pick up the pace of its drawdown and raise interest rates by the second half of next year. At present, the market expects a rate hike in June, which may be raised four times next year.

While this sentiment has weighed on gold for much of 2021, some analysts say the trend could begin to shift in the new year as U.S. monetary policy is too aggressive. Superstar Wealth expects that once the Fed starts raising rates, the focus will shift to how high these rates can reach. The 10-year Yield may rise next year, but we have not seen a significant rise and terminal rates will remain low. The gold market will remain relatively flat next year, with prices continuing to hover around $1800 an ounce. In a world of increasing geopolitical uncertainty, gold remains an attractive inflation hedge and safe-haven asset. Still, she added, even if momentum slows next year, U.S. economic growth will support risk assets.

Although many investors are disappointed by the performance of gold this year, the market has performed relatively well. Gold is currently testing support just below $1800 an ounce, and the market is down 6% this year. However, Hansen added that the current price action appears to be some consolidation of the nearly 25 percent gains in 2020. The most important factor driving gold's rally is the growing threat of inflation. While a Fed rate hike will push up bond yields, real interest rates will remain negative. Most economists expect that no matter how many times the Fed raises interest rates next year, they are unlikely to be ahead of the inflation curve.

Interest rates and real bond yields will be key factors driving precious metal prices next year; they are not the only things market analysts are focusing on. The entire commodities industry is in the middle of a long bull market. Superstar Wealth added that most prices have risen due to a serious imbalance between supply and demand, and insufficient investment in the mining industry has led to a shortage of supply while demand is increasing.

This article originated from the financial world