The price of gold changed slightly on Tuesday, driven by the stabilization of the dollar and ongoing expectations that the US Federal Reserve’s rate hikes could slow the pace. Analysts interpret the market and share their claims.
“Fed ready to take a wait-and-see attitude”
Spot gold was trading at $1,643, down 0.37% at press time. U.S. gold futures fell 0.55% to $1,645. The dollar index (DXY) has found some measure of support as the fall in the Chinese yuan shakes off pressure from a less hawkish Fed and bets on a stronger pound as Rishi Sunak prepares to become UK prime minister.
Gold competes with the dollar as a faithful store of value. Therefore, currency benefits make bullion unattractive to offshore buyers. But Stephen Innes, managing partner at SPI Asset Management, says the market is sensing that the aggressive part of the Fed’s rate hike cycle is coming true. He notes that this also supports gold to some extent. Innes adds that the Fed is likely to take a wait-and-see stance after the next few hikes.
“Gold price will likely rise for most of 2023”
Koindeks.com As you can follow, the markets are waiting for the Fed to raise interest rates by 75 bps. However, policymakers appear to be discussing the size of future increases. Clifford Bennett, chief economist at ACY Securities, comments:
Gold finally finds relative stability above $1,600. If the pressures from the stronger dollar and some government sales dissipate in the coming months, the gold price will likely rise significantly in the middle of $1,850 to $2,200 for most of 2023.
“Inflation is a monster that is hard to kill!”
In the middle, the holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, posted its first entry following a six-day drop. Edward Moya, senior analyst at OANDA, comments on the latest developments as follows:
The market is still in wait-and-see mode. What signal will the Fed give in terms of the weakness they see in the economy? Presumably, gold will be somewhat supportive in the short term. However, inflation is a beast that is hard to kill. The Fed will buy some time with these rate hikes before signaling this pivot.
Two scenarios for gold price from Goldman Sachs
A survey showed that US business activity contracted for the fourth month in a row in October. This is the latest proof that the economy is softening in the face of high inflation and rising interest rates. In a note, Goldman Sachs highlights the following:
The gold price could potentially rise to $2,250 in the event of a major US recession. Also, a drop to $1,500 is possible in an ultra-hawkish Fed scenario.
“Gold price is at the mercy of US monetary policy”
There are reports that some Fed officials are discussing a pause in the rapid pace of rate hikes. That helped gold rise on Friday as the US dollar eased. Capital.com analyst Daniela Hathorn makes the following statement on the subject:
Gold is largely at the mercy of US monetary policy. It will largely depend on how people perceive the next week’s rate hike. If investors believe the upcoming 75bps surge will be the last of this magnitude, it’s possible for gold to rise. This means that politics will slowly begin to turn.