Gold prices fluctuated in a narrow range on Thursday as market participants took a cautious stance ahead of precious US inflation data that could affect the extent of the Fed’s next rate hike. Analysts interpret the market and share their predictions.
“In the short term, gold will see a process in this range”
Spot gold was trading at $1,677, up 0.23% at the time of writing. US gold futures rose 0.46% to $1,685. Gold is classically regarded as an inflation hedge. However, interest rate hikes to contend with rising prices reduce bullion’s appeal as it does not yield interest. Edward Meir, analyst at ED&F Man Capital Markets, comments:
Inflation will be very sticky for a while. Because of that, it will keep the gold under pressure. In the short term, the process range of gold prices will be in the middle of $1,620 to $1,740.
“Gold still looks weak on the charts”
US Consumer Price Index information coming today. Markets anticipate a warm 8.1% yoy in September. This strengthens expectations for another major rate hike from the Fed. ANZ wrote in a note that stronger information would be negative for gold. The minutes of the Fed’s last policy meeting on Wednesday showed that policy makers had agreed that they should adopt a more restrictive policy stance, followed by a respite to keep inflation down.
Edward Meir says gold still looks weak on the charts. He also notes that any rally in prices will be short-term, as the Fed is still very hawkish about inflation.
“The market is looking at a random dovecote sign”
With this Koindeks.com As you follow in the FOMC minutes, several participants in the discussion said it would be valuable to “adjust” the pace of further policy tightening to reduce the risk of a valuable negative impact on the economic outlook. Tai Wong, a senior trader at Heraeus Precious Metals in New York, comments:
The market is looking at a random dovetail sign, the word “to adjust”. Therefore, the decline of the US dollar and the popularity of gold are increasing. However, the minutes should be read again as a hawk.
“Yellow metal poised to benefit from return in dollar and yields”
The dollar weakened, making gold cheaper for other currency holders. Indicator US 10-year Treasury yields also eased. Saxo Bank commodity strategy leader Ole Hansen comments on the latest developments as follows:
The gold and silver outlook is poised to benefit from the latest rebound in the dollar and yields. Therefore, it will continue to focus on inflation and economic data to support a shift in the hawkish stance the Fed has pointed to and any sign of weakness.
“There is still reason to be long gold”
Ole Hansen talks about volatility in Treasury yields and the dollar. He says these have taken gold and other commodities on a “bullet train ride” in recent weeks.
Commodity markets continue to draw heavily on directional inspiration from price action in financial markets. However, there is still reason to be long gold. A Fed policy mistake risks triggering a reverse reversal in equities, bonds and the dollar. Therefore, we see no reason to change our long-term bullish view of gold.
“PPI indicates that CPI will remain high”
Ryan Belanger, founder and chief executive of wealth management firm Claro Advisors, says Wednesday’s stronger-than-expected producer price information confirms the aggressive pace of the Fed’s rate hikes, even as these measures ultimately hurt the overall economy. In this context, the analyst makes the following statement:
The rise in producer prices in September indicates that Thursday’s Consumer Price Index will also remain high, as the prices consumers will pay for goods in the future are derived from the prices producers pay today.
“Bond yields continue to affect gold”
Higher interest rates boost the dollar and blunt demand for dollar-denominated commodities. Increasing returns raise the opportunity cost of holding non-returning assets. So there is a headwind for gold. Jeff Wright, chief investment officer at Wolfpack Capital, says bond yields are affecting gold. He also notes that a random notice on interest rates and the Fed’s attempt to rein in inflation have affected the yellow metal. The analyst continues his assessment in the following direction:
The higher-than-expected PPI data, mostly due to services rather than durable goods, is not a good sign for the CPI to be released on Thursday. I do not foresee that the Fed will raise interest rates before the November meeting. However, it is possible that he will accelerate QT measures to push interest rates higher in the medium term.