In line with the expectations, the Fed increased the policy rate by 75 bps. Gold reacted positively to this first. But he turned south after Fed Leader Jerome Powell said it was too early to discuss the slowdown. On Thursday, however, it continued its decline. Analysts interpret the latest developments and share their gold price assumptions.
“Employment numbers will be valuable for the price of gold”
Spot gold continued its decline on Thursday after falling 0.8% on Wednesday. At the time of writing, gold was trading at $1,627.6, down 0.46%. US gold futures fell 1.30% to $1,628.7.
Koindeks.com As you can follow, the Fed increased interest rates by 75 bps on Wednesday, as expected. Subsequently, he said, the effort with inflation will require a further increase in borrowing costs. But it has also signaled that it may be approaching an inflection point. DailyFX currency strategist Ilya Spivak says there’s some sort of consolidation pause below here, following quite a few contradictory signals from the Fed. The analyst makes the following assessment:
If the employment numbers reinforce this gruff rhetoric we’ve heard from Powell, it’s possible for gold to break the range floor (at $1,615). Also, it’s likely to try to expand downward in a more meaningful way.
“Too early to think that Powell’s speech was pretty hawkish”
Spot gold rose as much as 1.3% after the release of the policy statement at the end of the two-day meeting. However, he later gave up on the gains he had made from Powell’s statements. Tai Wong, a senior trader at Heraeus Precious Metals in New York, says Fed Leader Powell didn’t make a face. However, he notes it’s premature to think it sets a pretty hawkish tone for a pause rumor. In this context, the analyst notes:
Powell gives the Fed the option to avoid a frenzied market rally by avoiding the face of rate hikes, while emphasizing how high interest rates will be and how long they will stay there.
Gold prices will average $1,712.50 next year and rise from current levels, according to a Reuters poll.
“Gold investors will need a pause in rate hikes”
Rob Haworth, senior investment strategist at the U.S. Bank Wealth Administration, said the Fed raised 75 basis points as expected, but “the change in language appears to signal markets that the pace of rate hikes will slow or stop”. Based on this, the analyst makes the following statement:
Key language in the Fed’s statement probably signaled that it understood the pace of interest rate hikes still works in economics. This year’s strong US dollar and rising real interest rates have kept gold prices under pressure in 2022. The slowdown in the Fed’s rate hikes is unlikely to change this trend. Gold investors will likely need a pause in rate hikes to see gold begin to build its footing.
“Increasing returns and strength of the dollar are putting pressure on gold price”
At the press conference following the announcement, Powell said he did not believe the Fed was “tightening too much”. He also noted that there are “some grounds to cover” for raising interest rates. Despite the stock market reflection, the Fed has not finished raising and tightening rates, according to TheGoldForecast editor Gary Wagner. “They want to move interest rates to a minimum of 5 percent,” Wagner said. That will be really detrimental to economic prosperity,” he says. The Fed tightens in response to higher inflation, which was 8.2 percent in September. Wagner argues that economic “pain” can be avoided if the Fed starts raising rates in 2021.
The price of gold, currently trading at around $1,630 per ounce, has dropped 10% over the course of the year. Wagner says that due to uncertainty, investors are fleeing to the US dollar, which is seen as a safe haven asset. This, combined with rising returns, is putting downward pressure on the gold price. Wagner makes the following statement:
It’s about looking at the basket of rotten apples and picking the fewest rotten apples and that’s the dollar. If you are an international investor looking to park money, you will go for our debt instruments, not other countries’ debt instruments. This fact gives us the strength of the US dollar. There is a negative correlation in the middle of the dollar and gold as they are seen as substitute investments. The dollar is sitting at a twenty-year high. It’s this multi-dollar power that forces people not to look at gold as a safe haven asset.