Gold prices started the day lower on Friday, but later rose on the back of the weaker dollar. However, US Treasury yields were set for a second week’s decline as US Treasury yields soared to multi-year highs following strong labor market information and hawkish comments from Fed officials. Analysts interpret the market and share their assumptions.
“Gold prices will likely continue to decline”
Spot gold traded 0.86% at $1,641 at the time of writing. However, it still stands in negative territory this week. US gold futures rose 0.56% to $1,646. Stephen Innes, managing partner of SPI Asset Management, comments:
The Fed is now halfway through the tightening cycle. There is probably more room for rates to increase. Gold prices will likely continue to decline. It will monitor market, inflation and employment information. If they come above market claims for a pause, it’s possible for gold to go higher.
“The gold market will remain at risk in the near term”
High Ridge Futures metal trading manager David However, comments on the latest developments as follows:
If the interest rates continue to rise as they are, we believe that it will continue to lean on the gold market in the near term. The focus remains unequivocally on interest rates and the Fed’s rate hike expectations.
“Gold focused more on Fed’s next move”
In the midst of this, Fed Philadelphia Leader Patrick Harker said the Fed is not done with raising its short-term interest rate target despite high inflation levels. Jeffrey Sica, CEO of Circle Squared Alternative Investments, comments:
Gold has focused more on the prediction of what the Fed will do next. There is now an opinion that they are potentially slowing down the economy. It is possible for them to abandon this hawkish stance that has helped us today and can help us move forward. But it all depends more on data.
Is the top of the Fed’s falconry over?
According to Daniel Ghali, senior commodity strategist at TD Securities, prices of the most active gold contract rose as some expensive metals traders bet that expectations for further Fed rate hikes may finally have peaked. In this context, the analyst makes the following statement:
There’s about 50% chance of another jumbo raise at the December meeting. Traders are now starting to look for signs that the heyday of central bank hawkishness is over.
“Chinese stimulus and movement of deposited cash will be valuable”
Insignia Consultants research manager Chintan Karnani says she expects news of additional stimulus measures in China in the last week of January before the Chinese New Year. From this point of view, the analyst underlines the following issues:
I expect a new stimulus measure before the New Year in China. I argue that demand for expensive metals will be high if additional stimulus is announced.
Karnani also says traders are sitting on record high cash amid uncertainty over the US Senate election. The analyst draws the following conclusions from this situation:
More than one of this cash will be deposited until mid-November. There probably won’t be a big increase in bond yields after the November elections. There will be a transition from bonds to stocks, precious metals and metals. Still, the “X factor” will be determined by where the record pile of cash will go. It’s possible for gold and silver to get a nice percentage of long-term investment from the cash pile.
“Gold will deal with hawk Fedspeak”
Gold flirted with three-week lows near $1,620 earlier in the day. Fed expectations will continue to weigh on the yellow metal after US inflation information came in hotter than expected last month, according to TD Securities strategists. Strategists explain their views as follows:
Gold positions continue to loosen. ETF holdings are down over 400,000 ounces in the last session. This is the biggest one-day drop since March last year. Fedspeak persists in advancing the narrative of our readiness for a hawkish central bank regime. In this context, until the Fed makes progress in the fight against inflation, it is unlikely that gold will rise with a dismal growth outlook. Physical demand for bullion remained high. But seasonal assessments suggest that the wind will soon subside after India’s festive season.
“A rally for yellow metal is probably a long way off”
Koindeks.com As you can follow, gold prices have decreased significantly from the previous year’s peak. Strategists at HSBC expect the yellow metal to be mostly on the defensive before gaining ground next year. Strategists make the following assessment:
After the February 2023 meeting, the Fed is about to continue to increase interest rates before giving the middle. In this case, gold is likely to face more downside pressure. A pause following the rate hikes is likely to allow gold to recover. However, the absence of rate cuts will limit potential profits.
According to strategists, the financial climate has turned decisively against gold. However, he notes that rising geopolitical risks, high oil prices and the general situation underlying physical demand for gold are likely to soften gold’s decline. In addition, strategists share the following assumption:
A stronger USD will keep gold on the defensive until 2023. However, it is possible that the weakening of the USD’s strength will give gold an opportunity to rise in the later periods of 2023.